This file has now been updated to match the problem numbers on the Fall 1997 Syllabus
Roberta Company uses standard absorption costing for internal reporting. Standards for the single product it makes are:
Std Quant Std price Standard
Materials 2 lbs. $30 per lb $ 60.00
Labor .5 DLH $20 per DLH 10.00
Variable OH .6 MH $30 per MH 18.00
Fixed OH .6 MH $80 per MH 48.00
$136.00
During May, 19x9, the following occurred:
Units in beginning inventory 20,000 Units produced 150,000 Units sold 160,000 Sales price per unit $200
Actual inputs:
Materials purchased and used 290,000 lb. $8,845,000 Direct labor 73,000 DLH $1,606,000 Variable overhead 89,000 MH $2,670,000 Fixed overhead $6,600,000
Fixed SG&A expenses $1,499,000
Variable SG&A expenses $ 320,000
Required:
In class, we have prepared an absorption costing income statement for this company. Prepare a variable costing income statement.
Arno Company makes two models of its only product, a sophisticated trap for rodents. Data relating to each model appear below:
Regular Deluxe Standard material cost $10 $20 Standard labor cost $5 $8
All overhead is fixed and the firm uses budgeted direct labor cost for the coming year, 19X6, as the basis for determining standard cost. During 19X6 the managers expect to make 4,000 units of each model, for total direct labor cost of $52,000. Budgeted overhead is $104,000. There were no beginning inventories.
Operations for the year showed the following results:
Regular Deluxe Production 4,200 3,600 Sales 4,000 3,200 Selling price $40 $70 Costs: Materials $108,000 Direct labor $54,000 Overhead $98,000 Selling and general, all fixed $35,000
REQUIRED:
a. Prepare an income statement using standard absorption costing. Identify all variances separately to the extent that you have the necessary information.
b. Prepare an income statement using standard variable costing.
Figure Four operates a company that specializes in the distribution of pharmaceutical products. Figure Four buys from pharmaceutical companies and resells to each of three different markets: General supermarket chains, Drugstore chains, and single store pharmacies. Their controller has become concerned about the profitability of the single store pharmacy market and has undertaken an activity based costing project aimed at measuring the profitability of each customer in that market. They have identified five key activity areas and cost drivers at Figure Four. Information about the activities, the total cost per activity, and the cost drivers is presented below:
Activity Cost Cost driver Past year results
Order processing $80,000 # of orders 2,000 orders
Line item processing $63,840 # of line items ordered 21,280 line items
Store delivery $71,000 # of deliveries 1,420 deliveries
Cartons shipped $76,000 # of cartons/delivery 76,000 cartons shipped
Shelf stacking at $10,240 # of hours shelf stacking 640 hours
customer store
Two customers are used to highlight the new insights available with the activity-based costing approach. Data pertaining to these two customers follow:
Charleston Chapel Hill Total number of orders 12 10 Average number of line items per order 10 18 Total number of deliveries 6 10 Average number of cartons shipped per delivery 24 20 Average number of hours of shelf stacking per delivery 0 .5 Average revenue per delivery $2,400 $1,800 Average cost of goods sold per delivery $2,100 $1,650
REQUIRED:
Use the activity based costing information to compute the profitability of each customer. Comment on the results. What should Figure Four do to improve customer profitability?
1. Exco Company makes a single product. Standard cost data follow:
Materials, 3 gal. @ $2 $6 Direct labor, .5 hour @ $8/hour $4 Variable overhead @ $6 per labor hour $3 Fixed overhead @ $10 per labor hour $5 Total standard cost $18
Annual budgeted fixed overhead is $500,000. There were no inventories at the beginning of 19X6. The firm's transactions during the year were:
1. Material purchases were 330,000 gallons at $1.90
2. Material use was 304,000 gallons.
3. Direct laborers worked 47,500 hours at $8 per hour.
4. Variable overhead was $285,000.
5. Fixed overhead was $512,000.
6. The firm completed 97,000 units and sold 90,000 at $25 each. Work in process at year end was 3,000 units complete as to materials, 60% complete as to labor and overhead.
7. Selling and administrative expenses were $450,000.
REQUIRED:
a. Determine ending material, work in process and finished goods inventories at standard cost.
b. Prepare an income statement using standard absorption costing identifying all variances separately.
c. Without preparing a new income statement, determine what income would have been if the firm had used standard variable costing.