Amcor, Inc., incurs the following costs to produce and sell a single product.
Variable costs per unit: | ||
Direct materials | $ 10 | |
Direct labor | $ 5 | |
Variable manufacturing overhead | $ 2 | |
Variable selling and administrative expenses | $ 4 | |
Fixed costs per year: | ||
Fixed manufacturing overhead | $ 90,000 | |
Fixed selling and administrative expenses | $ 300,000 | |
|
During the last year, 30,000 units were produced and 25,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $85,000 for the 5,000 unsold units. |
Required: |
1. | Determine whether the company is using absorption costing or variable costing to cost units in the Finished Goods inventory account. |
a. | Calculate the ending balance in the Finished Goods inventory account under variable costing and absorption costing. |
b. | Which costing method is the company using to cost units in the Finished Goods inventory account? | ||||
|
2. | Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. |
a. | Is the $85,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? | ||||||||
|
b. | At what dollar amount should the 5,000 units be carried in inventory for external reporting purposes? |
Finished goods inventory balance for external reporting purposes__________ |
Michaels Company segments its income statement into its East and West Divisions. The company’s overall sales, contribution margin ratio, and net operating income are $600,000, 50%, and $50,000, respectively. The West Division’s contribution margin and contribution margin ratio are $150,000 and 75%, respectively. The East Division’s segment margin is $70,000. The company has $60,000 of common fixed costs that cannot be traced to either division.
Required: |
Prepare an income statement for Michaels Company that uses the contribution format and is segmented by divisions. (Round your percentage answers to 1 decimal place.) |