1. Trio Company reports the following information for its first year of operations.
Direct materials
Direct labor
Variable overhead
Fixed overhead
Units produced
Units sold
Ending finished goods inventory
$ 15
$ 16
$4
$ 160,000
20,000
14,000
6,000
per unit
per unit
per unit
per year
units
units
units
a. Compute the product cost per unit using absorption costing.
b. Determine the cost of ending finished goods inventory using absorption costing.
c. Determine the cost of goods sold using absorption costing.
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2. Trio Company reports the following information for its first year of operations.
Direct materials
Direct labor
Variable overhead
Fixed overhead
Units produced
Units sold
Ending finished goods inventory
$ 15
$ 16
$4
$ 160,000
20,000
14,000
6,000
per unit
per unit
per unit
per year
units
units
units
Assume instead that Trio Company uses variable costing.
a. Compute the product cost per unit using variable costing.
b. Determine the cost of ending finished goods inventory using variable costing.
c. Determine the cost of goods sold using variable costing.
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3. Aces Incorporated, a manufacturer of tennis rackets, began operations this year. The company produced 6,000
rackets and sold 4,900. Each racket was sold at a price of $90. Fixed overhead costs are $78,000 per year, and
fixed selling and administrative costs are $65,200 per year. The company also reports the following per unit variable
costs for the year.
Direct materials
Direct labor
Variable overhead
Variable selling and administrative expenses
$ 12
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a. Prepare an income statement under variable costing.
b. Compute the cost of ending finished goods inventory reported on the balance sheet using variable costing.
c. Prepare an income statement under absorption costing.
d. Compute the cost of ending finished goods inventory reported on the balance sheet using absorption costing.
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4. D’Souza Company sold 10,000 units of its product for $80 per unit. Cost of goods sold is $55 per unit. Each unit
had $40 in variable cost of goods sold and variable selling and administrative expenses are $10 per unit.
a. Compute gross profit under absorption costing.
b. Compute contribution margin for this company.
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5. Cool Sky reports the following for its first year of operations. The company produced 44,000 units and sold
36,000 units at a price of $140 per unit.
Direct materials
Direct labor
Variable overhead
Fixed overhead
Variable selling and administrative expenses
Fixed selling and administrative expenses
$ 60
$ 22
$8
$ 528,000
$ 11
$ 105,000
per unit
per unit
per unit
per year
per unit
per year
a. Assume the company uses absorption costing. Determine its total product cost per unit.
b. Assume the company uses absorption costing. Prepare its income statement for the year under absorption
costing.
c. Assume the company uses variable costing. Determine its total product cost per unit.
d. Assume the company uses variable costing. Prepare its income statement for the year under variable costing.
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6. Sims Company began operations on January 1. Its cost and sales information for this year follow.
Direct materials
Direct labor
Variable overhead
Fixed overhead
Variable selling and administrative expenses
Fixed selling and administrative expenses
Units produced
Units sold
Sales price
$ 40
$ 60
$ 30
$ 7,000,000
$ 11
$ 4,250,000
100,000
70,000
$ 350
per unit
per unit
per unit
per year
per unit
per year
units
units
per unit
a. Prepare an income statement for the year using variable costing.
b. Prepare an income statement for the year using absorption costing.
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7. Jax Incorporated reports the following data for its only product. The company had no beginning finished goods
inventory and it uses absorption costing.
Sales price
Direct materials
Direct labor
Variable overhead
Fixed overhead
$ 56.00
$ 9.00
$ 6.50
$ 11.00
$ 720,000
per unit
per unit
per unit
per unit
per year
a. Compute gross profit assuming (a) 60,000 units are produced and 60,000 units are sold and (b) 80,000 units are
produced and 60,000 units are sold.
b. By how much would the company’s gross profit increase or decrease from producing 20,000 more units than it
sells?
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8. Huds Incorporated reports the information below on its product. The company uses absorption costing and has a
target markup of 40% of absorption cost per unit.
Direct materials
Direct labor
Variable overhead
Fixed overhead
Variable selling and administrative expenses
Fixed selling and administrative expenses
Units produced
Units sold
$ 100
$ 30
$8
$ 600,000
$3
$ 120,000
50,000
50,000
per unit
per unit
per unit
per year
per unit
per year
units per year
units per year
Compute the target selling price per unit under absorption costing.
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