1. July August September
Sales... $1,750,000 $1,875,000 $2,000,000
Less variable expenses:
Variable manufacturing costs
@ $9 per unit ... 630,000 675,000 720,000
Variable selling and adminis-
trative expenses @ $6 per
unit... 420,000 450,000 480,000
Total variable expenses 1,050,000 1,125,000 1,200,000
Contribution margin ... 700,000 750,000 800,000
Less fixed expenses:
Fixed manufacturing over-
head 1 ... 560,000 560,000 560,000
Fixed selling and administra-
tive expenses 2 ... 200,000 200,000 200,000
Total fixed expenses... 760,000 760,000 760,000
Net operating income (loss) ... $ (60,000) $ (10,000) $ 40,000
1 $1,680,000 ÷ 3 = $560,000 per month.
2 Fixed selling and administrative expenses (from July’s figures):
$620,000 – (70,000 units × $6 per unit = $420,000) = $200,000.
Note how clear and easy to follow the variable costing statements are as
compared to the absorption costing statements.
The $560,000 monthly fixed manufacturing overhead cost can also be
obtained by the following computation:
July August September
Fixed manufacturing overhead cost
applied ... $595,000 $560,000 $420,000
Underapplied or (overapplied)
overhead ... (35,000) 140,000
Fixed manufacturing overhead cost .. $560,000 $560,000 $560,000
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
Solutions Manual, Chapter 7 381
Case 7-18 (continued)
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