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Variable cost analysis for a special-
Grand Garden is a luxury hotel with 160 suites. Its regular suite rate is $200 per night per suite.
The hotel’s cost per night is $125 per suite and consists of the following.
 

Variable direct labor and materials cost	$	24
Fixed cost [($5,870,000/160 suites) ÷ 365 days]		101
Total cost per night per suite	$	125

 
The hotel manager received an offer to hold the local Bikers’ Club annual meeting at the hotel in March,
which is the hotel’s low season with an occupancy rate of under 50%.
The Bikers’ Club would reserve 45 suites for three nights if the hotel could offer a 50% discount, or a rate of $100 per night.
The hotel manager is inclined to reject the offer because the cost per suite per night is $125.
 
Required:
Prepare an analysis of this offer for the hotel manager.
 
 
Variable costing income statement and conversion to absorption costing income (two consecutive years)
[The following information applies to the questions displayed below.]

Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow.
 

		2016			2017
Sales ($44 per unit)	$	880,000		$	1,760,000
Cost of goods sold ($29 per unit)		580,000			1,160,000
Gross margin		300,000			600,000
Selling and administrative expenses		280,000			320,000
Net income	$	20,000		$	280,000

Additional Information
 
Sales and production data for these first two years follow.
 

	2016		2017
Units produced	30,000		30,000
Units sold	20,000		40,000

 
Variable cost per unit and total fixed costs are unchanged during 2016 and 2017.
The company's $29 per unit product cost consists of the following.
 

Direct materials	$	4
Direct labor		9
Variable overhead		6
Fixed overhead ($300,000/30,000 units)		10
Total product cost per unit	$	29

 
Selling and administrative expenses consist of the following.
 

		2016			2017
Variable selling and administrative expenses ($2 per unit)	$	40,000		$	80,000
Fixed selling and administrative expenses		240,000			240,000
Total selling and administrative expenses	$	280,000		$	320,000

Problem 6-1A Part 1
Complete income statements for the company for each of its first two years under variable costing.
(Loss amounts should be entered with a minus sign.)
 

 
What are the differences between the absorption costing income and the variable costing income for these two years?
(Loss amounts should be entered with a minus sign.)
 
 

   
Trio Company reports the following information for the current year, which is its first year of operations.

Direct materials	$14	per unit
Direct labor	$16	per unit
Overhead costs for the year
Variable overhead	$60,000	per year
Fixed overhead	$120,000	per year
Units produced this year	20,000	units
Units sold this year	14,000	units
Ending finished goods inventory in units	6,000	units

Sims Company, a manufacturer of tablet computers, began operations on January 1, 2017.
Its cost and sales information for this year follows.
 

Manufacturing costs
Direct materials	$35 per unit
Direct labor	$55 per unit
Overhead costs for the year
Variable overhead	$3,150,000
Fixed overhead	$7,350,000
Selling and administrative costs for the year
Variable	$725,000
Fixed	$5,000,000
Production and sales for the year
Units produced	105,000 units
Units sold	75,000 units
Sales price per unit	$360 per unit

1. Prepare an income statement for the year using variable costing.

2. Prepare an income statement for the year using absorption costing.

3. Under what circumstance(s) is reported income identical under both absorption costing and variable costing?
 
Which of the following would be a line item for a variable costing income statement?
 
Gross margin
Cost of goods available for sale
Total cost of goods sold
Contribution margin
Work-in-process inventory
   
When evaluating a special order, management should:
 
Only accept the order if the incremental revenue exceeds all product costs.
Only accept the order if the incremental revenue exceeds fixed product costs.
Only accept the order if the incremental revenue exceeds total variable product costs.
Only accept the order if the incremental revenue exceeds full absorption product costs.
Only accept the order if the incremental revenue exceeds regular sales revenue.
   
Alexis Co. reported the following information for May:

Units sold	5,000 units
Selling price per unit	$800
Variable manufacturing cost per unit	520
Sales commission per unit – Part A	80

 
What is the manufacturing margin for Part A?
$1,000,000
$1,400,000
$3,600,000
$2,600,000
   
Geneva Co. reports the following information for July:

Sales	$750,000
Variable costs	225,000
Fixed costs	100,000

 
Calculate the contribution margin for July.
$525,000
$425,000
$650,000
$750,000
   
JPL Company has two segments - Retail and Commercial. The Retail segment has a contribution margin ratio of 40%
and traceable fixed expenses of $70,000. Commercial has traceable fixed expenses of $50,000 and a contribution
margin ratio of 55%. The company also has $30,000 of common fixed expenses.
The break-even point in dollar sales for the Retail segment equals ______.
 
$175,000

70,000 / 40% = 175,000
   
SPS Products has two divisions—Catalog Sales and Online Sales. For the last quarter the Catalog Sales segment margin was ($5,000).
Online sales were $100,000. Online Sales contribution margin was $60,000, and its segment margin was $40,000.
If Catalog Sales are discontinued, it is estimated that online sales will increase by 10%.
Discontinuing Catalog Sales should increase company profits by ______.
 
$11,000

100,000 x .1 x 60,000 / 100,000 + 5,000 = 11,000.
   
Pearls, Pearls, Pearls! manufactures and sells jewelry. The total variable cost of goods sold this month is $72,490.
Variable selling and administrative cost is $22 per unit sold. If 350 units are produced and 314 units are sold this month,
the total variable cost reported on the income statement for the month is $______.
 
$79,398
 
72,490 + (22 x 314) = 79,398
   
The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is $_____.
 
$20,376
 
849 x 24 = 20,376 Blissful Breeze manufactures and sells ceiling fans. Each fan has a unit cost of $112 and a unit selling price of $190.
If Blissful Breeze produces 900 fans and sells 842 fans this month, the total cost of goods sold will be:
 
$94,304
 
842 x $112 = 94,304
   
Sleep Tight manufactures pillows. The company incurred $42,000 of fixed manufacturing overhead cost this year.
Variable unit product cost was $17. Variable selling and administrative cost was $9 per unit and fixed selling and
administrative expenses totaled $59,000. The company manufactured pillows and sold 15,408.
Total fixed expenses on the variable costing contribution format income statement equal:
 
$101,000
 
42,000 + 59,000
   
Lily's Lanterns incurs variable selling and administrative costs of $13 per unit sold and fixed selling and administrative costs of $62,000.
If Lily produces 500 lanterns, but only sells 325 of them, the total selling and administrative expense under absorption costing is:
 
$66,225
 
13 x 325 + 62,000 = 66,225
   
The unit product cost of a blender is $24. If 900 blenders are produced and 849 blenders are sold, the total cost of goods sold is:
 
$20,376
 
849 x 24 = 20,376

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