Zaki Metal Company produces the steel wire that goes into the production of paper clips. In 2002,

Question:

Zaki Metal Company produces the steel wire that goes into the production of paper clips. In 2002, the first year of operations, Zaki produced 40,000 miles of wire and sold 30,000 miles. In 2003, the production and sales results were exactly reversed. In each year, selling price per mile was \($80\), variable manufacturing costs were 25% of the sales price, variable selling expenses were \($6.00\) per mile sold, fixed manufacturing costs were \($1,200,000\), and fixed administrative expenses were $200,000.

Instructions

(a) Prepare comparative income statements for each year using variable costing.

(b) Prepare comparative income statements for each year using absorption costing.

(c) Reconcile the differences each year in income horn operations under the two cost- ing approaches.

(d) Comment on the effects of production and sales on net income under the two cost- ing approaches.

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Related Book For  book-img-for-question

Managerial Accounting Tools For Business Decision Making

ISBN: 9780471413653

2nd Canadian Edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly

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