Part 1. a. Super-variable costing net operating income exceeds variable costing
ID: 2468681 • Letter: P
Question
Part 1.
a. Super-variable costing net operating income exceeds variable costing net operating income by $63,000.
b. Super-variable costing net operating income exceeds variable costing net operating income by $12,000.
c. Variable costing net operating income exceeds super-variable costing net operating income by $12,000.
d. Variable costing net operating income exceeds super-variable costing net operating income by $63,000.
Part 2.
The company is considering using either super-variable costing or a variable costing system that assigns $22 of direct labor cost to each unit that is produced. Which of the following statements is true regarding the net operating income in the first year?
a. Variable costing net operating income exceeds super-variable costing net operating income by $427,000.
b. Variable costing net operating income exceeds super-variable costing net operating income by $154,000.
c. Super-variable costing net operating income exceeds variable costing net operating income by $154,000.
d. Super-variable costing net operating income exceeds variable costing net operating income by $427,000.
Explanation / Answer
Part 1: The correct option is c. Variable costing net operating income exceeds super-variable costing net operating income by $ 12,000.
The number of units produced was 32,000, and the number of units sold is 31,000. Hence, there is an ending inventory of 1,000 units.
Cost of ending inventory under Variable costing = $ 107 x 1,000 = $ 107,000
Cost of ending inventory under Super variable costing $ 95 x 1,000 = $ 95,000
Cost of goods sold under Variable costing is lower by $ (107,000 - 95,000) = $ 12,000
Part 2: The correct option is b. Variable costing net operating income exceeds super-variable costing net operating income by $ 154,000.
Ending inventory in units = 23,000 - 16,000 = 7,000
Cost of ending inventory under variable costing = $ 106 x 7,000 = $ 742,000
Cost of ending inventory under super-variable costing = $ 84 x 7,000 = $ 588,000
Hence Variable costing net operating income exceeds super-variable net operating income by $ ( 742,000 - 588,000) = $ 154,000