Assignment:
Q: Ogilvy Company manufactures and sells one product. The following information pertains to each of the company's first three years of operations:
| Variable cost per unit: |
|
|
| Direct materials |
$ |
34 |
| Fixed costs per year: |
|
|
| Direct labor |
$ |
2,106,000 |
| Fixed manufacturing overhead |
$ |
840,000 |
| Fixed selling and administrative expenses |
$ |
314,000 |
The company does not incur any variable manufacturing overhead costs or variable selling and administrative expenses. During its first year of operations, Ogilvy produced 78,000 units and sold 78,000 units. During its second year of operations, it produced 78,000 units and sold 72,600 units. In its third year, Ogilvy produced 78,000 units and sold 83,400 units. The selling price of the company's product is $76 per unit.
Required:
1. Assume the company uses super-variable costing:
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
Unit Product Cost |
| Year 1 |
|
| Year 2 |
|
| Year 3 |
b. Prepare an income statement for Year 1, Year 2, and Year 3.
| Ogilvy Company |
| Super-Variable Costing Income Statement |
|
Year 1 |
Year 2 |
Year 3 |
|
|
|
|
|
|
|
|
|
0 |
0 |
0 |
| Fixed expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total fixed expenses |
0 |
0 |
0 |
| Net operating income (loss) |
$0 |
$0 |
$0
|
2. Assume the company uses a variable costing system that assigns $27 of direct labor cost to each unit produced:
a. Compute the unit product cost for Year 1, Year 2, and Year 3.
Unit Product Cost |
| Year 1 |
|
| Year 2 |
|
| Year 3 |
b. Prepare an income statement for Year 1, Year 2, and Year 3.
| Ogilvy Company |
| Variable Costing Income Statement |
|
Year 1 |
Year 2 |
Year 3 |
|
|
|
|
|
|
|
|
|
0 |
0 |
0 |
| Fixed expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total fixed expenses |
0 |
0 |
0 |
| Net operating income (loss) |
$0 |
$0 |
$0 |
3. Reconcile the difference between the super-variable costing and variable costing net operating incomes in Years 1, 2, and 3.
Year 1 |
Year 2 |
Year 3 |
| Super-variable costing net operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
| Variable costing net operating income (loss) |
$0 |
$0 |
$0 |