| Bharat Bicycle, located in India, produces an inexpensive yet rugged bicycle for use on crowded city streets. The company sells the bicycle for 528 rupees. (Indian currency is denominated in rupees, denoted by R.) Selected data for the company’s operations last year follow: |
| Units in beginning inventory | 0 | ||
| Units produced | 13,400 | ||
| Units sold | 10,600 | ||
| Units in ending inventory | 2,800 | ||
| Variable costs per unit: | |||
| Direct materials | R | 121 | |
| Direct labour | R | 157 | |
| Variable manufacturing overhead | R | 48 | |
| Variable selling and administrative | R | 22 | |
| Fixed costs: | |||
| Fixed manufacturing overhead | R | 924,600 | |
| Fixed selling and administrative | R | 616,400 | |
| An absorption costing income statement prepared by the company’s accountant appears below: |
| Sales (10,600 units × R528 per unit) | R | 5,596,800 | ||||
| Cost of goods sold: | ||||||
| Beginning inventory | R | 0 | ||||
| Add cost of goods manufactured (13,400 units × R ? per unit) |
5,293,000 | |||||
| Goods available for sale | 5,293,000 | |||||
| Less ending inventory (2,800 units × R ? per unit) |
1,106,000 | 4,187,000 | ||||
| Gross margin | 1,409,800 | |||||
| Selling and administrative expenses: | ||||||
| Variable selling and administrative | 233,200 | |||||
| Fixed selling and administrative | 616,400 | 849,600 | ||||
| Operating income | R | 560,200 | ||||
| Required: |
| 1. | Determine how much of the ending inventory of R1,106,000 above consists of fixed manufacturing overhead cost deferred in inventory to the next period.
total fixed manufacturing overhead in ending inventory R ——-
|
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Answer
1)
Determine how much of the ending inventory of R1,106,000 above consists of fixed manufacturing overhead cost deferred in inventory to the next period.
Answer
Total Fixed Manufacturing Overhead in Ending Inventory
Units in Ending Inventory * Fixed Manufacturin Over head Per Units
Total units produce=10600+2800
=13400
=2800 x 1106000/13400
=$ 231104.48
2)
Prepare an income statement for the year using the variable costing method.
| Variable costing Income statement | |
| Sales | 5596800 |
| Less: | |
| Variable Expenses | 3137600 |
| (121+157+48) * 10600 | |
| Variavle Cost Of Goods Sold | |
| Selling and Admin Expenses | 233200 |
| (22*10600) | |
| Contribution Margin | 2226000 |
| Less: | |
| Fixed Expenses | |
| Fixed manufacturing Overhead | 1106000 |
| Fixed selling and admin Over head | 616400 |
| Net Operating Income | 503600 |
