Summit Manufacturing, Inc. produces snow shovels. The selling price per snow shovel is $30. There is no beginning inventory.

Costs involved in production are:

Direct materials $5.00

Direct labor 4.00

Variable manufacturing overhead 3.00

Total variable manufacturing costs per unit $12.00

Fixed manufacturing overhead per year $180,000

In addition, the company has fixed selling and administrative costs of $160,000 per year.

Exercise E5-1

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: What is the value of ending inventory using full costing?

Exercise E5-2

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: What is the value of ending inventory using variable costing?

Exercise E5-3

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: Calculate the difference in full costing net income and variable costing net income

without preparing either income statement.

Exercise E5-4

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: What is the cost of goods sold using full costing?

Exercise E5-5

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: What is the variable cost of goods sold?

Exercise E5-6

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: What is net income using full costing?

Exercise E5-7

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: What is net income using variable costing?

Exercise E5-8

During the year, Summit produces 50,000 snow shovels and sells 45,000 snow shovels.

Required: How much fixed manufacturing overhead is in ending inventory under full costing?

Compare this amount to the difference in the net incomes calculated in Exercise 5-3.