Variable Costing & Cost Allocation and Activity-Based Costing

(1 (a ) Cost per unit of inventory using variable costing

Cost per unit of inventory direct variable costs indirect variable costs direct materials direct labor variable manufacturing overhead costs 10 20 5 35

The cost per unit of inventory of Lee , Inc . for the month of July is 37 using variable costing (b ) Cost per unit of inventory using full costing

Cost per unit of inventory direct variable costs direct fixed costs direct materials direct labor variable manufacturing overhead (fixed manufacturing costs The cost per unit of inventory of Lee , Inc . for

the month of July is 50 using full costing (c ) Lee , Inc 's July income statement using variable costing

Lee , Inc

Income Statement

July

Sales 70 5 ,500 pairs sold 385 ,000

Less : Variable Costs Variable Cost of Goods Sold Direct Materials 10 6 ,000 pairs produced 60 ,000

Direct Labor 20 6 ,000 pairs produced 120 ,000

Variable Manufacturing Overhead 5 6 ,000 pairs

produced

30 ,000

Variable Selling and Administrative Expenses 2 5 ,500 pairs

produced ) 11 ,000

Contribution Margin 164 ,000

Less : Fixed Costs Fixed Manufacturing Overhead 90 ,000

Fixed Selling and Administrative Expenses 25 ,000

Net Income 49 ,000 (d ) Lee , Inc 's July income statement using full costing

Lee , Inc

Income Statement

July

Sales 70 5 ,500 pairs sold 385 ,000

Less : Cost of Goods Sold Direct Materials 10 6 ,000 pairs produced 60 ,000

Direct Labor 20 6 ,000 pairs produced 120 ,000

Variable Manufacturing Overhead 5 6 ,000 pairs produced

30 ,000

Fixed Manufacturing Overhead 90 ,000

Less : Ending Inventory 50 1 ,500 pairs left 75 ,000

Gross Margin 160 ,000

Selling and Administrative Expenses : Variable Selling and Administrative Expenses 2 5 ,500 pairs produced

11 ,000

Fixed Selling and Administrative Expenses 25 ,000

Net Income 124 ,000 (e ) The net income was higher when full costing method was used as the ending inventory , i .e , the number of pairs left unsold , was taken into account in calculating the cost of goods sold . Meanwhile , in variable costing method , only the variable costs were taken into consideration in calculating the cost of goods sold . Then , the fixed costs were deducted to obtain the net income . The number of unsold units was not accounted for in the variable costing method . Hence , the net income was higher using the full costing method (2 (a ) Overhead rate per unit of activity for each of the five cost pools 8 per unit

Material ing rate per unit is 8 200 per unit

Material inspection rate per unit is 200 20 ,000 per unit

Equipment setup rate per unit is 20 ,000 225 per unit

Quality control rate per unit is 225 1 .50 per unit

Others rate per unit is 1 .50 (b equipment

setup quality control others 800 ,000 400 ,000 2 ,000 ,000 900 ,000 15 ,000 ,000 19 ,100 ,000 br 20 ,000 units 955 per unit

Overhead cost per unit of Remote Mouse is 955 (d unit

overhead cost per unit 31 6...