Reference no: EM132734919

Problem - Variable Costing versus Absorption Costing

Creative Tiles makes tiles in batches of 1,000 tiles each, the standard "unit" in the industry. Each batch consumes $70 in materials and $140 in labor costs. Manufacturing overhead, in total, amounts to $1,500,000 per year and is allocated equally among the batches produced during the year. Creative had no inventories at the beginning of the most recent year. During the most recent year, Creative made 15,000 batches. The firm sold 13,500 batches for an average price of $450 each. Creative incurred variable marketing costs of $50 per batch and fixed marketing costs of $625,000 for the year.

Required -

a. Prepare a contribution margin statement for Creative Tiles for the most recent year. In addition, compute the value of the Creative Tiles' ending inventory under variable costing.

b. Prepare a gross margin statement for Creative Tiles for the most recent year. Also compute the value of the Creative Tiles' ending inventory under absorption costing.