1.

Mhyrr Company, which has only one product, has provided the following data concerning its
most recent month of operations:

Selling price .............................................. $138

Units in beginning inventory ..................... 0

Units produced .......................................... 7,200
Units sold .................................................. 7,000
Units in ending inventory .......................... 200

Variable costs per unit:

Direct materials ...................................... $42
Direct labor ............................................ $32
Variable manufacturing overhead .......... $1
Variable selling and administrative........ $8

Fixed costs:
Fixed manufacturing overhead ............... $280,800
Fixed selling and administrative ............ $98,000

Required:

a. What is the unit product cost for the month under variable costing?
b. What is the unit product cost for the month under absorption costing?
c. Prepare an income statement for the month using the contribution format and the
variable costing method.
d. Prepare an income statement for the month using the absorption costing method.
e. Reconcile the variable costing and absorption costing net operating incomes for the
month.

2. The Done Company produces and sells a single product. The following data refer to the year
just completed:

Beginning inventory ........................................................ 0

Units produced ................................................................ 20,000
Units sold ........................................................................ 19,000

Selling price per unit ....................................................... $350

Selling and administrative expenses:
Variable per unit........................................................... $10
Fixed (total) .................................................................. $225,000
Manufacturing costs:
Direct materials cost per unit ....................................... $190
Direct labor cost per unit .............................................. $40
Variable manufacturing overhead cost per unit ........... $25
Fixed manufacturing overhead (total) .......................... $250,000
 Assume that direct labor is a variable cost.

Required:

a. Compute the cost of a single unit of product under both the absorption costing and
variable costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare an income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net operating income figures in
(b) and (c) above.

3. King Company, which has only one product, has provided the following data concerning its
most recent month of operations:

Selling price .............................................. $77

Units in beginning inventory ..................... 0

Units produced .......................................... 6,700
Units sold .................................................. 6,500
Units in ending inventory .......................... 200

Variable costs per unit:

Direct materials ...................................... $27
Direct labor ............................................ $13
Variable manufacturing overhead .......... $5
Variable selling and administrative........ $7

Fixed costs:
Fixed manufacturing overhead ............... $100,500
Fixed selling and administrative ............ $58,500

Required:

a. What is the unit product cost for the month under variable costing?
b. Prepare an income statement for the month using the contribution format and the
variable costing method.
c. Without preparing an income statement, determine the absorption costing net
operating income for the month. (Hint: Use the reconciliation method.)

4. Miles Company produces a single product. The company had the following results for its first
two years of operation:

Year 1 Year 2
Sales .......................................................... $1,200,000 $1,200,000
Cost of goods sold ..................................... 800,000 680,000
 Gross margin ............................................. 400,000 520,000
Selling and administrative expenses ......... 300,000 300,000
Net operating income ................................ $ 100,000 $ 220,000

In Year 1, the company produced and sold 40,000 units of its only product; in Year 2, the
company again sold 40,000 units, but increased production to 50,000 units. The
company's variable production cost is $5 per unit and its fixed manufacturing overhead
cost is $600,000 a year. Fixed manufacturing overhead costs are applied to the product on
the basis of each year's unit production (i.e., a new fixed overhead rate is computed each
year). Variable selling and administrative expenses are $2 per unit sold.

Required:

a. Compute the unit product cost for each year under absorption costing and under
variable costing.
b. Prepare an income statement for each year, using the contribution approach with
variable costing.
c. Reconcile the variable costing and absorption costing income figures for each year.
d. Explain why the net operating income for Year 2 under absorption costing was higher
than the net operating income for Year 1, although the same number of units were
sold in each year.

5. Juicyyy Juice Company manufactures and sells premium tomato juice by the gallon. Succulent
just finished its first year of operations. The following data relates to this first year:

Number of gallons produced ........................................... 75,000

Number of gallons sold ................................................... 70,000
Sales price ....................................................................... $3.00 per gallon
Unit product cost under variable costing ........................ $1.45 per gallon
Total contribution margin ............................................... $84,000
Total fixed manufacturing overhead cost ........................ $63,000
Total fixed selling and administrative expense ............... $10,500

Required:

Using the absorption costing method, prepare Juicyyy Juice Company's income statement
for the year.

6. Worry Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:
Variable costing net operating income, last year ............ $71,000
Variable costing net operating income, this year ............ $92,000
Fixed manufacturing overhead costs deferred in
inventory under absorption costing, last year .............. $2,000
Fixed manufacturing overhead costs released from
inventory under absorption costing, this year .............. $11,000
 Required:

a. Determine the absorption costing net operating income last year.

b. Determine the absorption costing net operating income this year.

7. Carry Corporation manufactures a variety of products. Last year, variable costing net
operating income was $72,000. The fixed manufacturing overhead costs deferred in
inventory under absorption costing amounted to $29,000.
Required:

Determine the absorption costing net operating income last year.

8. Last year, Rails Corporation's variable costing net operating income was $57,000. The fixed
manufacturing overhead costs deferred in inventory under absorption costing amounted
to $30,000.

Required:

Determine the absorption costing net operating income last year.

9. Plains Corporation manufactures a variety of products. The following data pertain to the
company's operations over the last two years:

Variable costing net operating income, last year ............ $82,700

Variable costing net operating income, this year ............ $87,800
Increase in ending inventory, last year ............................ 900
Decrease in ending inventory, this year .......................... 3,100
Fixed manufacturing overhead cost per unit ................... $2

Required:

a. Determine the absorption costing net operating income for last year.
b. Determine the absorption costing net operating income for this year.

10. Last year, Dungeons Corporation's variable costing net operating income was $64,200 and
ending inventory increased by 1,900 units. Fixed manufacturing overhead cost per unit
was $4.

Required:

Determine the absorption costing net operating income for last year.