Homework: Variable Cost and Net Income

Kathryn Blink
Homework Week 4
The following information relates to Exercises 5-11 through 5-18:
Summit Manufacturing, Inc. produces snow shovels. The selling price per snow shovel is $30. There is no beginning inventory.
Costs involved in production are:
Direct material

$5
Direct labor
$4
Variable manufacturing overhead
$3
Total variable manufacturing costs per unit
$12
Fixed manufacturing overhead cost per year
$180,000
In addition, the company has fixed selling and administrative costs of $160,000 per year.

Exercise 5-11.
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels. What is the value of ending inventory using full costing?
Fixed manufacturing overhead per unit: $3.60 ($180,000/50,000 units)
Unit cost: $15.60 ($3.60 + $5 + $4 + $3)
Ending Inventory Value Using Full Costing: $78,000 ($15.60*5,000 units in ending inventory)

Exercise 5-12.
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels. What is the value of ending inventory using variable costing?
Unit cost: $12 ($5 + $4 + $3)
Ending Inventory Value Using Variable Costing: $60,000 ($12* 5,000)

Exercise 5-13.
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels. Calculate the difference in full costing net income and variable costing net income without preparing either income statement.
Difference in Net Incomes: $18,000 ($3.60*5,000)

Exercise 5-14.
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels. What is cost of goods sold using full costing?
Cost of Goods Sold using Full Costing: $702,000 ($45,000*$15.60)

Exercise 5-15.
During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels. What is variable cost of goods sold?
Variable Cost of Goods Sold: $540,000 ($45,000*$12)

Exercise 5-16.
During the year, Summit produces 50,000 snow shovels and sells 45,000 shovels. What is net income using full costing?
Sales: