Question

Oak Mart, a producer of solid oak tables, reports the following data from its second year of business. Sales price per unit $ 320 per unit Units produced this year 115,000 units Units sold this year 118,000 units Units in beginning-year inventory 3,000 units Beginning inventory costs Variable (3,000 units × $135) $ 405,000 Fixed (3,000 units × $80) 240,000 Total $ 645,000 Manufacturing costs this year Direct materials $ 40 per unit Direct labor $ 62 per unit Overhead costs this year Variable overhead $ 3,220,000 Fixed overhead $ 7,400,000 Selling and adminstrative costs this year Variable $ 1,416,000 Fixed 4,600,000 6.value: 5.55 pointsRequired information 1. Prepare the current year income statement for the company using variable costing.

Answer 1

Income Statement - Oak Mart

total sales $320 x 118,000 units sold = $37,760,000

variable COGS ($15,355,000)

variable beginning inventory = ($405,000)

variable direct costs ($40 + $62) x 115,000 = ($11,730,000)

variable overhead = ($3,220,000)

manufacturing margin $22,405,000

variable administrative and selling costs ($1,416,000)

contribution margin $20,989,000

fixed costs ($12,000,000)

fixed overhead = ($7,400,000)

administrative and selling = ($4,600,000)

net income $8,989,000

When you are calculating variable costing, COGS only includes variable costs. All fixed costs are included as period costs at the end. Fixed costs are not carried forward either.

Answer 2

Sales ( 118,000 × $ 320) 37,760,000

Less Cost of Goods Sold : (14,909,500)

Opening Stock (3,000 units × $135) 40,500

Add Cost of Goods Manufactured

Direct materials ($ 40 × 118,000 units) 4,720,000

Direct labor ($ 62 × 118,000 units) 7,316,000

Variable overhead 3,220,000

Less Closing Stock (3,000 × ($ 40+$ 62+$27)) (387,000)

Contribution 22,850,500

Less Operating Expenses :

Fixed overhead (7,400,000)

Selling and administrative costs :

Variable ( 1,416,000)

Fixed (4,600,000)

Net Income 9,434,500

Step-by-step explanation:

Variable Product Cost = Direct Materials + Direct Labor + Variable Overheads

Variable Costing - Period Cost = Fixed Overheads + All Non- Manufacturing Expenses