For the coming year, Archway C
For the coming year, Archway Computers Inc. expects to produceand sell 200,000 computers. Of these, 80,000 will be consumer(personal) computers and 120,000 will be small business computers.Common fixed overhead is $700,000. Additional information for thecoming year is as follows:
ConsumerComputers Small BusinessComputers
Price $780 $2,300
Unit DirectMaterials 500 1,800
Unit DirectLabour 160 290
Unit VariableOverhead 40 75
Unit Variable SellingExpenses 75 70
Total Direct FixedOverhead 120,000 200,000
Fixed selling and administrative expense for Archway ComputersInc. is $3,460,000 per year.
Required:
Calculate the unit variable cost under variable costing. Is thiscost the same as unit variable product cost? Why or why not?
Prepare a segmented variable-costing income statement for nextyear. The segments correspond to product lines: consumer computersand small business computers.
Answer:
Solution
Archway Computers
- Computation of unit variable cost under variable costingmethod:
|
Consumer Computers |
Small Business Computers |
|
|
Unit variable cost: |
||
|
Direct material |
$500 |
$1,800 |
|
Direct labot |
$160 |
$290 |
|
variable overhead |
$40 |
$75 |
|
Variable selling expenses |
$75 |
$70 |
|
total unit variable cost |
$775 |
$2,235 |
|
Unit Variable Product Cost |
||
|
Consumer Computers |
Small Business Computers |
|
|
Unit variable product cost: |
||
|
Direct material |
$500 |
$1,800 |
|
Direct labot |
$160 |
$290 |
|
variable overhead |
$40 |
$75 |
|
Total unit variable product cost |
$700 |
$2,165 |
Unit variable cost and unit variable product cost are different.The difference is due to the inclusion of variable selling expensesin the unit variable cost. The unit variable product cost comprisesthose costs that are incurred in the production such as directmaterial cost, direct labor cost and variable overhead. Sellingexpenses are not part of production cost.
Segmented Variable Costing Income Statement
|
Consumer Computers |
Small Business Computers |
Total |
|
|
Sales (units) |
80,000 |
120,000 |
200,000 |
|
Sales (Dollars) |
$62,400,000 |
$276,000,000 |
338,400,000 |
|
Variable costs |
$62,000,000 |
$268,200,000 |
330,200,000 |
|
Contribution margin |
$400,000 |
7,800,000 |
$8,200,000 |
|
Direct fixed overhead |
$120,000 |
$200,000 |
$320,000 |
|
Segment Margin |
$280,000 |
$7,600,000 |
$7,880,000 |
|
Common Fixed Costs |
$3,460,000 |
||
|
Operating Income |
$4,420,000 |
||
Sales
- Consumer Computers = 80,000 x $780 = $62,400,000
- Business Computers = 120,000 x 2,300 = $276,000,000
Variable cost
- Consumer Computers = 80,000 x $775 = $62,000,000
- Business Computers = 120,000 x 2,235 = $268,200,000
Contribution margin = sales – variable cost
Segment margin = contribution margin – direct fixed overhead
Operating income = total segment margin – common fixed costs
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