Kensington Company manufactures a single product with the following costs:

Estimated and actual fixed manufacturing costs equal $100,000 for the year. Beginning inventory of 30 units is valued at $4 per unit under full-absorption costing and at $3 per unit under variable costing. Assume units flow on a FIFO basis (if a product flow assumption is necessary). Any over- or underapplied fixed overhead appears on the income statement for this period.
The president of Kensington wants an analysis on the effect of variations in sales and production units. To help you he has included a chart (Exhibit 9-23 A on the next page) for you to complete for nine situations (all numbers in thousands).

a. Complete the chart.

b. Write a short report to the president of Kensington that explains how the relation between units sold and units produced affects profits.

Transcribed Image Text:

Selling price Variable manufacturing costs (direct materials and direct labor) Fixed manufacturing costs, based on a normal production volume of 100,000 units per month (all manufacturing overhead is fixed) Marketing and administrative costs (all fixed) 5.00 per unit 3.00 per unit 1.00 per unit 50,000 per month