Variable and Full Costing: Spencer Electronics produces a wireless home lighting device that allows consumers to turn on home lights from their cars and light a safe path into and through their homes. Information on the first three years of business is as follows:
| 2014 | 2015 | 2016 | Total | |
| Units sold | 20,000 | 20,000 | 20,000 | 60,000 |
| units produced | 25,000 | 25,000 | 15,000 | 60,000 |
| fixed production cost | $750,000 | $750,000 | $750,000 | |
| variable production costs per unit | $150 | $150 | $150 | |
| Selling price per unit | $250 | $250 | $250 | |
| Fixed selling and admin expense | $220,000 | $220,000 | $220,000 | |
Required
1. Calculate profit and the value of ending inventory for each year using full costing.
2. Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost structure remain constant.
3. Calculate profit and the value of ending inventory for each year using variable costing.
4. Explain why, using variable costing, profit does not fluctuate from year to year.
a. Calculate profit and the value of ending inventory for each year using full costing. Round costpercent to two decimal places.
| 2014 | 2015 | 2016 | |
| Units sold | 20,000 | 20,000 | 20,000 |
| Selling price per unit | 250 | 250 | 250 |
| Sales revenue =Unit Price * Unit Sold |
5000000 | 5000000 | 5000000 |
| Less: | |||
| Cost of goods sold =VC* Units Produce |
3750000 | 3750000 | 2250000 |
| Margin | 1250000 | 1250000 | 2750000 |
| Less: | |||
| Fixed Production Cost | 750,000 | 750,000 | 750,000 |
| Admin costs (minus) | 220000 | 220000 | 220000 |
| Net Income | 280,000 | 280,000 | 1,780,000 |
| Inventory | 5000 | 5000 | 0 |
| Value | 944000 | 944000 |
2. Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost structure remain constant.
Answer :
Due to the varying quantities of products manufactured, it affects the fixed manufacturing costs
3
Calculate profit and the value of ending inventory for each year using variable costing.
Answer :
| 2014 | 2015 | 2016 | |
| Units sold | 20,000 | 20,000 | 20,000 |
| Selling price per unit | 250 | 250 | 250 |
| Sales revenue =Unit Price * Unit Sold |
5000000 | 5000000 | 5000000 |
| Less: | |||
| Cost of goods sold =VC* Units sold |
3000000 | 3000000 | 3000000 |
| Margin | 2000000 | 2000000 | 2000000 |
| Less: | |||
| Fixed Production Cost | 750,000 | 750,000 | 750,000 |
| Admin costs (minus) | 220000 | 220000 | 220000 |
| Net Income | 1,030,000 | 1,030,000 | 1,030,000 |
| Inventory | 5000 | 5000 | 0 |
| Value | 944000 | 944000 |
4
Explain why, using variable costing, profit does not fluctuate from year to year.
Answer :Because in the variable costing we consider the cost of goods for only that product we sold so profit level remain same and it does not fluctuate from year to year
