Please explain the below solution. Is the $5 variable cose from the $100,000 lef
ID: 2477694 • Letter: P
Question
Please explain the below solution. Is the $5 variable cose from the $100,000 left over after the $200,000 fixed manufacturing costs and that divided by $15000 units? and how did he get teh $90,000 variable selling and administrative
Thanks
kathy
II) Variable vs. Absorption Costing (15 points)
The manager of the manufacturing division of Illinois Glass does not understand why income (under the variable costing approach) is so low in January relative to the ABSORPTION costing approach. 20,000 units were produced in January
Units sold
Sales
Beginning inventory (absorption)
Cost of inventory production (Fixed and variable)
Ending inventory (absorption)
Operating income (absorption)
January
15,000
$450,000
0
$300,000
$75,000
$35,000
The fixed manufacturing costs were $200,000. Fixed Selling and administrative expenses were $100,000.
What is the average production cost per unit? $15 using inventory
FC/unit = 200.000/20,000 = $10 VC unit = $5
Determine the variable production cost per unit. Complete the following income statement under variable costing for January
January Income Statement
Sales Revenue ……………………………………………… $450,000
Variable COGS ……………………… $5x 15,000 ($75,000)
Variable Selling
& Administrative ………………………… (90,000)
Contribution Margin ………………………………………………. 285,000
Fixed Manufacturing ……………………… ($200,000)
Fixed Selling
& Administrative ………………………… ($100,000)
_________________
Operating Income (Variable Costing) 35,000-$10x 5,000 =(15,000)
Units sold
Sales
Beginning inventory (absorption)
Cost of inventory production (Fixed and variable)
Ending inventory (absorption)
Operating income (absorption)
January
15,000
$450,000
0
$300,000
$75,000
$35,000
Explanation / Answer
1. Variable Cost per unit is calculated as = (300,000 - 200,000)/20,000 = $5 per unit
$200,000 is for fixed cost.
2. Variable selling and administrative expenses are the balancing figure. If we start from below, we can see that loss is calculated by the formula which comes as -$15,000. Now contribution as calculated as (200,000+100,000-15,000) because contribution is equal to Fixed cost minus Loss. Now total variable cost is calculated by deducting contribution from sales value and we have got total variable cost as $165,000 (450,000 - 285,000). Now from total variable cost, variable CoGS is deducted to get variable selling and administrative expenses.