Cleveland Toner Company (CTC) manufactures toner used in photocopy machines. The companys Problem 2.71 product is sold

Question:

Cleveland Toner Company (CTC) manufactures toner used in photocopy machines. The company’s Problem 2.71 product is sold by the jug at $60 p e r u n i t . C T C u s e s a n a c t u a l c o s t i n g s y s t e m, w h i c h m e a n s t h a t t h e a c t u - | C o m p a r i s o n o f A b s o r p t i o n a l c o s t s o f d i r e c t m a t e r i a l, d i r e c t l a b o r, a n d m a n u f a c t u r i n g o v e r h e a d a r e e n t e r e d i n t o w o r k - i n - p r o c e s s a d V a r i a b l e C o s t i n g; A c t u a l i n v e n t o r y . T h e a c t u a l a p p l i c a t i o n r a t e f o r m a n u f a c t u r i n g o v e r h e a d i s c o m p u t e d e a c h y e a r; a c t u a l m a n u - © ° S t I n g f a c t u r i n g o v e r h e a d i s d i v i d e d b y a c t u a l p r o d u c t i o n (i n u n i t s) t o c o m p u t e t h e a p p l i c a t i o n r a t e . I n f o r m a t i o n (L O 2, 3, 4) f o r C T C^{'} s f i r s t t w o y e a r s o f o p e r a t i o n s i s a s f o l l o w s : Y e a r | Y e a r 2 S O N G S C W E L I N E S W i e a t t e n n e e M a e L e n s e s n s e p P a s s o t e a t i e n r c e y s 2, 5002, 500 P r O G W e H O m a (U C) r e n a e n p e e r s o l y C A i o n n i o n a c h e e s e a h r d i s s y 3, 0002, 000 P r o d u c t i o n c o s t s : V a t i a b l e i m a n u t a c t u n i n g h e o s t s a w s . a . n d a h s o s s$ 21,000 $14,000 Rixecimanuracturingioverneadss tiseet | ba aide Sots * 42,000 42,000 Selling and administrative costs:
Valle OlSary irate taper ptt aril ich ame eon ches Pat 25,000 25,000 FIXGGemoee rene Te rere ete cre ht eaten AMEE ayaa 20,000 20,000 Required Cleveland Toner Company had no beginning or ending work-in-process inventories for either year.

a. Prepare operating income statements for both years based on absorption costing.

b. Prepare operating income statements for both years based on variable costing.

c. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).

d. Reconcile CTC’s income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement.
™ Cost of goods sold ® Fixed cost (expensed as a period expense)

e. What was CTC’s total income across both years under absorption costing and under variable costing?
Comment on this result.

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