Problem 2: Absorption costing and Variable Costing (10 points: 4 + 4 + 2)
Blanche Inc. operated at 100% of capacity during its first month and provided following information:
Number of units produced: 20,000
Production costs (for 20,000 units):
Direct materials $180,000 $9.00
Direct labor $160,000 $8.00
Variable Manufacturing overhead $140,000 $7.00
Fixed manufacturing overhead $120,000 $6.00
Selling, General and Admin (SGA) expenses:
Variable SGA expenses (VSGA) $60,000
Fixed SGA expenses (FSGA) $20,000
Blanche sold 16,000 units during the first month at a price of $48 per unit.
Required:
A. Calculate the following Using Absorption Costing method:
Product costs per unit:
Sales revenue:
Costs of goods sold:
Gross profit:
Selling, General and Admin (SGA) expenses:
Income from operations:
Ending inventory:
B. Calculate the following using Variable Costing method:
Product costs per unit:
Sales revenue:
Total variable costs (VCOGS + VSGA):
Contribution margin:
Total fixed costs (Fixed MOH + FSGA):
Income from operations:
Ending inventory:
C. Under which costing method the income is higher? Explain why.
