Ystad Industries Cost Behavior



Ystad Industries Cost Behavior

Computations

Ans1)

Variable Costing Format

Ekland Division

Income Statement for 1st Quarter

Production= 25,000 units

Revenue (25000*100)

 

$2,500,000

Less variable expenses

 

 

Variable cost of goods sold:

 

 

Beginning inventory (10,000 units)

$625,000

 

Add Cost of goods manufactured (25000 units×$50per unit)

$1,250,000

 

Goods available for sale

$1,875,000

 

Less ending inventory (10,000 units×$50 per unit)

$500,000

 

Variable Cost of Goods sold

$1,375,000

 

Contribution Margin

 

$1,125,000

Less fixed expenses:

 

 

Selling & general expenses

 

500000

Fixed selling and administrative expenses

 

$500,000

Net Operating Income

 

$125,000

Ans2)

Ekland Division

Income Statement for 2nd Quarter

Absorption Costing Income 

Production= 50,000 units

Sales (25,000 units×$100 per unit)

 

$2,500,000

 

 

 

Less cost of goods sold:

 

 

Beginning inventory (10,000 units)

$625,000

 

Add Cost of goods manufactured (50000units×$60per unit)

$3,000,000

 

Goods available for sale

$3,625,000

 

Less ending inventory (35000 units×$60 per unit)

$2,100,000

 

Cost of Goods Sold

$1,525,000

 

Gross Margin

 

$975,000

Less Expenses:

 

 

Fixed selling and administrative expenses

 

$500,000

Net Operating Income

 

$475,000

Variable Costing Format

Ekland Division

Income Statement for 2st Quarter

Production = 50,000 units

Revenue (25,000*100)

 

$2,500,000

Less variable expenses

 

 

Variable cost of goods sold:

 

 

Beginning inventory (10,000 units)

$625,000

 

Add Cost of goods manufactured (50000 units×$50per unit)

$2,500,000

 

Goods available for sale

$3,125,000

 

Less ending inventory (35000 units×$50 per unit)

$1,750,000

 

Variable Cost of Goods sold

$1,375,000

 

Contribution Margin

 

$1,125,000

Less fixed expenses:

 

 

Selling & general expenses

 

500000

Fixed selling and administrative expenses

 

$500,000

Net Operating Income

 

$125,000

Ans3)

Unit Cost Under Absorption Costing

2nd Quarter

1st Quarter

Direct Materials Cost per Unit

0

0

Direct Labor Cost Per Unit

0

0

Variable Manufacturing Cost Per unit

50

42.48

Fixed Manufacturing Overhead Per unit (5,000,000/50000)

10

20

Total Cost Per Unit

60

62.48

Unit Cost Under Variable Costing

2nd Quarter

1st Quarter

Direct Materials Cost per Unit

0

0

Direct Labor Cost Per Unit

0

0

Variable Manufacturing Cost Per unit

50

42.48

Total Variable Cost Per Unit

50

42.48

Discussion

Ans1)

Roland improves the performance for the second quarter only in the absorption costing method. The income is $475,000 while the net income is $125,000 in the Variable Costing. If we compare the absorption costing with the 1st quarter of the absorption costing, the difference in the net income is $37,000 which is 8.44% more than 1st quarter. This is because of the increase in the production due to which the total cost per unit reduce which was 62.48 in 1st quarter and 60 per unit in 1nd quarter. Moreover, the fixed manufacturing cost reduced from 20 to 10. Where as in the variable costing, though the cost per unit increase i.e. 50 per unit and 42.48 in 1st quarter, but generating same amount of net income $125,000 in both the quarters.

Ans2)

The suggestion to made are as followed:

In order to report in future, firstly ensure proper analysis of the behavior of production efficiency per unit of product produced or in process. It is necessary to calculate unit cost by the regulations of consumer, labor and other ...