NaturePure Company differs from the Domenico (described in Problem 13-56) in only one respect: It has both variable and fixed manufacturing costs. Its variable costs are $0.035 per liter and its fixed manufacturing costs are $1,020,000 per year.

Data in Problem 13-56

Domenico is a French multinational food products company based in Paris. The company packages and sells natural spring water under the brand name “aqua.” The company has built a massive bottling plant near a natural spring. The plant is completely automated and uses sustainable energy for its operations. All producing and other operating costs are fixed; they do not vary with output because the volume is governed by adjusting a few dials on a control panel. The employees have fixed annual salaries. 

The packaged spring water is sold to customers at an average rate of $0.165 per liter. The price is expected to remain unchanged for quite some time. 

The following are data regarding the first 2 years of operations:

Orders can be processed in 4 hours so the management decided, in early 2020, to gear production strictly to sales. 

1. Using the same data as in the preceding problem, except for the change in production-cost behavior, prepare three-column income statements for 2019, for 2020, and for 2 years together using.

(a) Variable costing.

(b) Absorption costing. 

2. What inventory costs would be carried on the balance sheets on December 31, 2019 and 2020, under each method?

Transcribed Image Text:

2019 2020 Sales 6,800,000 6,800,000 In liter Production 13,600,000 0 Costs (All Fixed) Manufacturing $750,000 $750,000 Other $230,000 $230,000