Ystad Industries



Ystad Industries

Computation

Answer 1) Conversion of the Ekland absorption income statement to a contribution margin income statement for the first quarter

Variable Costing Format

Ekland Division

Income Statement for 1st Quarter

For the Quarter Ending March 31, 2012

Production= 25,000 units

000

Revenue (25000*100)

 

$2,500,

-Variable Exp

 

 

VCOGS:

 

 

Beg. Inv (10,000 units)

$625

 

+ CGM (25000 units×$50per unit)

$1,250

 

Goods for sales

$1,875

 

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

$500

 

Variable Cost of Goods sold

$1,375

 

Contribution Margin -CM

 

$1,125

- Fixed expenses:

 

 

Selling & general expenses

 

500

Fixed selling & administrative expenses

 

$500

Net Operating Income

 

$125

Answer 2) Prepare contribution margin income statements for the second quarter for Ekland

Ekland Division

Income Statement for 2nd Quarter

Absorption Costing Income 

For the Quarter Ending June 30, 2012

Production= 50,000 units

000

Sales (25,000 units×$100 per unit)

 

$2,500

 

 

 

=CGS:

 

 

Beg. Inv (10,000 units)

$625

 

+ CGM (50000units×$60per unit)

$3,000

 

Goods for sale

$3,625

 

-Ending Inv (35000 units×$60 per unit)

$2,100

 

Cost of Goods Sold

$1,525

 

GM

 

$975

- Expenses:

 

 

Fixed selling and administrative expenses

 

$500

Net Operating Income

 

$475

Variable Costing Format

Ekland Division

Income Statement for 2st Quarter

For the Quarter Ending June 30, 2012

Production = 50,000 units

000

Revenue (25,000*100)

 

$2,500

-Variable expenses

 

 

Variable cost of goods sold:

 

 

Beg Inv (10,000 units)

$625

 

+CGM(50000 units×$50per unit)

$2,500

 

Goods available for sale

$3,125

 

-Ending Inv (35000 units×$50 per unit)

$1,750

 

Variable Cost of Goods sold

$1,375

 

CM

 

$1,125

Less Fixed Expenses:

 

 

Selling & general expenses

 

500

Net Operating Income

 

$125

Answer 3) Compute production costs per unit for both approaches and for both years

Unit Cost Under Absorption Costing

2nd Quarter

1st Quarter

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

Cost Per unit Variable Manufacturing

50

42.48

Cost Per Unit Total Variable

50

42.48

Discussion

Answer 1)

Improved performance of the company can be seen only through the method of absorption costing while net income by variable method is same $125,000 for 25000 units and 5000 units. The 1st quarter income through absorption costing is $375,000 while 2nd quarter income through absorption costing is $475,000 the difference in the net income is $10,000 which is 26.66% more than 1st quarter, while there is no change when income is calculated through variable costing in both quarters. This is due to the increase in the production which has reduced the total cost per unit re 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 and 2nd quarter respectively, but generating same amount of net income $125,000 in both the quarters. Hence, Roland did ...