1. Birds Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply $50 for direct material, $100 for direct labor, and $60 for variable overhead. The companys annual fixed overhead cost is $750,000; it uses the expected capacity of 12,500 units produced as the basis for applying fixed overhead to products. A commission of 10% of the selling price is paid on each unit sold. Annual fixed selling and administrative expenses are $180,000. The following additional information is available:

Year 1 Year 2

Selling price per unit $500 $500

Number of units sold 10,000 12,000

Number of units produced 12,500 11,000

Beginning inventory (units) 7,500 10,000

Ending inventory (units) 10,000 9,000

1. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being changed to Cost of Goods Sold.

2. Reconcile the difference in income for the two months.

3. The company finds it worthwhile to develop its internal financial data on a variable costing basis. What advantages and disadvantages are attributed to variable costing for internal purposes?

4. Many accountants believe that variable costing is appropriate for external reporting; many others oppose its use for external reporting. List the arguments for and against the use of variable costing in external reporting.

a. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being changed to Cost of Goods Sold.

b. Reconcile the difference in income for the two months.

c. The company finds it worthwhile to develop its internal financial data on a variable costing basis. What advantages and disadvantages are attributed to variable costing for internal purposes?

b. Many accountants believe that variable costing is appropriate for external reporting; many others oppose its use for external reporting. List the arguments for and against the use of variable costing in external reporting.