Harrison Pumps is a division of Liverpool Controls Corporation. The division manufactures and sells a pump that

Question:

Harrison Pumps is a division of Liverpool Controls Corporation. The division manufactures and sells a pump that is used in a wide variety of applications. During the coming year, it expects to sell 60,000 units for $20 per unit. Imran Qureshi manages the division. He is considering producing either 60,000 or 100,000 units during the period. Other information is as follows:
Division Information for 2012
Beginning inventory ............................................. 0
Expected sales in units .................................... 60,000
Selling price per unit .......................................... $20
Variable manufacturing cost per unit ........................ $9
Division Information for 2012
Fixed manufacturing overhead cost (total) ....................................... $240,000
Fixed manufacturing overhead costs per unit
Based on 60,000 units .................................$4.00 per unit ($240,000 ( 60,000)
Based on 100,000 units .............................. $2.40 per unit ($240,000 ( 100,000)
Manufacturing cost per unit
Based on 60,000 units ......................... $13 per unit ($9.00 variable ( $4.00 fixed)
Based on 100,000 units ..................... $11.40 per unit ($9.00 variable ( $2.40 fixed)
Variable selling and administrative expenses ......................................$1 per unit
Fixed selling and administrative expenses (total) .................................... $30,000
Instructions
(a) Prepare an absorption-costing income statement, with one column showing the results if 60,000 units are produced and one column showing the results if 100,000 units are produced.
(b) Prepare a variable-costing income statement, with one column showing the results if 60,000 units are produced and one column showing the results if 100,000 units are produced.
(c) Reconcile the difference in net incomes under the two approaches and explain what causes this difference.
(d) Discuss the usefulness of the variable-costing income statements versus the absorption-costing income statements for decision-making and for evaluating the manager's performance?