Absorption and variable costing. (CMA) Osawa, Inc., planned ...

[RRMR]

Absorption and variable costing.
 
  (CMA) Osawa, Inc., planned and actually manufactured 200,000 units of its single product in 2014, its first year of operation. Variable manufacturing cost was 20 per unit produced. Variable operating (nonmanufacturing) cost was 10 per unit sold. Planned and actual fixed manufacturing costs were 600,000. Planned and actual fixed operating (nonmanufacturing) costs totaled 400,000. Osawa sold 120,000 units of product at 40 per unit.
 
  Required:
  1. Osawa's 2014 operating income using absorption costing is (a) 440,000, (b) 200,000, (c) 600,000, (d) 840,000, or (e) none of these. Show supporting calculations.
  2. Osawa's 2014 operating income using variable costing is (a) 800,000, (b) 440,000, (c) 200,000, (d) 600,000, or (e) none of these. Show supporting calculations.

Question 2

Which of the following is not true concerning T accounts?
 a. The right side of a revenue account is an increase.
  b. The left side of an expense account is an increase.
  c. The left side of an asset account is an increase.
  d. The left side of a liability account is an increase.

[Tabitha_2016]

Answer to Question 1

The answers are 1(a) and 2(c). Computations:

1. Absorption Costing:
Revenuesa
Cost of goods sold:
Variable manufacturing costsb
Allocated fixed manufacturing costsc
Gross margin

2,400,000
360,000

4,800,000

2,760,000
2,040,000
Operating costs:
Variable operatingd
Fixed operating
Operating income
1,200,000
400,000

1,600,000
 440,000

a 40  120,000
b 20  120,000
c Fixed manufacturing rate = 600,000  200,000 = 3 per output unit
Fixed manufacturing costs = 3  120,000
d 10  120,000

2. Variable Costing:
Revenuesa
Variable costs:
Variable manufacturing cost of goods soldb
Variable operating costsc
Contribution margin
Fixed costs:
Fixed manufacturing costs
Fixed operating costs
Operating income

2,400,000
1,200,000

600,000
400,000
4,800,000

3,600,000
1,200,000

1,000,000
 200,000

a 40  120,000
b 20  120,000
c 10  120,000

Answer to Question 2

D