The following data relate to Jupiter Company, a new corporation, during a period when the firm produced and sold 100,000 units and 90,000 units, respectively:Direct materials used$400,000Direct labor200,000Variable manufacturing overhead120,000Fixed manufacturing overhead250,000Selling and administrative expenses: ? Variable45,000 Fixed 300,000The company met its original planned production target of 100,000 units. There were no variances during the period, and the firm's selling price is $15 per unit.Required: A.What is the cost of Jupiter's end-of-period finished-goods inventory under the variable-costing method?B.Calculate the company's variable-costing income.C.Calculate the company's absorption-costing income.
What will be an ideal response?
A. Ending finished-goods inventory (units): 0 + 100,000 - 90,000 = 10,000
Inventoriable costs under variable costing:
Direct materials used | $400,000 |
Direct labor | 200,000 |
Variable manufacturing overhead | 120,000 |
Total | $720,000 |
Variable cost per unit produced: $720,000 ÷ 100,000 units = $7.20 per unit
Ending inventory: 10,000 units × $7.20 = $72,000
B.
Sales revenue (90,000 units × $15) | $1,350,000 |
Less: Variable Costs (90,000 units × $7.20) + $45,000 | 693,000 |
Contribution margin | $657,000 |
Less: Fixed costs ($250,000 + $300,000) | 550,000 |
Income | $107,000 |
C. Predetermined fixed overhead rate: $250,000 ÷ 100,000 units = $2.50
Absorption cost per unit: $7.20 + $2.50 = $9.70
Sales revenue (90,000 units × $15) | $1,350,000 |
Less: Cost of Goods Sold (90,000 units × $9.70) | 873,000 |
Gross margin | $477,000 |
Less: Operating costs ($300,000 + $45,000) | 345,000 |
Income | $132,000 |
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