Question :
122.Last month, Toro Tools produced 6,000 wheelbarrows and sold 6,200 : 1302756
122.Last month, Toro Tools produced 6,000 wheelbarrows and sold 6,200 at a price of $62 each. Toro had 900 wheelbarrows in beginning inventory. Manufacturing costs consisted of direct materials of $84,000, direct labor of $27,300, variable manufacturing overhead of $21,000, and fixed manufacturing overhead of $120,000. General and administrative fixed costs totaled $32,000. Variable selling costs were $1 per wheelbarrow. Assume the same unit costs in all years.
a.Calculate Toro Tools’ net income using full costing.
b.Calculate Toro Tools’ net income using variable costing.
123.Assess Digital produces digital controls. Information on its first three years of business is as follows:
201420152016Total
Units sold20,000 20,000 20,000 60,000
Units produced 20,000 25,000 15,000 60,000
Fixed production costs $500,000 $500,000 $500,000
Variable production costs per unit $100 $100 $100
Selling price per unit $200 $200 $200
Fixed selling and administrative exp. $150,000 $150,000$150,000
a.Calculate net income and the value of ending inventory for each year using full costing.
b.Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost structure remain constant.
124.Wise Company began operations in 2014. A company has $8.00 per unit in variable production costs and $3.00 per unit in variable selling and administrative costs. The annual fixed production cost is $180,000. The annual fixed selling and administrative cost is $20,000.
a.Complete the table below for the number of units and dollar value of ending inventory under variable costing for each year.
2014201520162017
Units produced60,00070,00080,00090,000
Units sold55,00072,00082,00091,000
Units in ending inventory
Ending inventory using variable costing
b.Assume that the selling price and cost structure stayed the same over the 4-year period. How would the total net income compare for the entire period between variable and full costing?
CHALLENGE EXERCISES
125.ABT makes a single product, bucket stoppers. During 2014, 155,000 units were sold and 150,000 units were produced. Information for 2014 appears below:
Beginning inventory in units 6,000
Variable production cost per unit $1.20
Variable operating costs per unit $0.80
Fixed production cost per year $127,500
Fixed selling and administrative cost per year $32,000
Selling price per unit $6.00
a.How much is the contribution margin for 2014 under variable costing?
b.How much is the gross margin for 2014 under full costing?
c.Explain why variable and full costing produce different results.
126.Bucket Zone had 2,200 buckets in its beginning inventory. It manufactured 23,000 buckets and sold 23,400 buckets during the year. Costs involved in production are $3 for direct materials, $2 for direct labor, and $1.20 for variable overhead, each on a per unit basis. The company has annual fixed selling and administrative costs of $78,000 and fixed annual manufacturing overhead costs totaling $86,250. Operating income using variable costing is $33,000.
a.Determine the amount by which net income will differ under absorption costing compared to variable costing.
b.Determine operating income under absorption costing.
c.How would the difference between variable and full costing be impacted if the company switched to a JIT system? Explain.
