1. Cool Car motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May

2017 are as? follows: The selling price per vehicle is $26,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 400 units. There are no? price, efficiency, or spending variances. Any? production-volume variance is written off to cost of goods sold in the month in which it occurs.

April

May

Unit data:

Beginning inventory

0

150

Production

400

375

Sales

250

505

Variable costs:

Manufacturing cost per unit produced

$9,500

$9,500

Operating (marketing) cost per unit sold

2,800

2,800

Fixed costs:

Manufacturing costs

$2,400,000

$2,400,000

Operating (marketing) costs

550,000

550,000

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Prepare April and May 2017 income statements for Cool Car Motors under? (a) variable costing and? (b) absorption costing.

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Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing

2. uses standard costing to produce a particularly popular type of candy. HoneylandHoneyland?'s President, JeffJeff AlredAlred was unhappy after reviewing the income statements for the first three years of business. He? said, "I was told by our accountantslong dashand in? fact, I have memorizedlong dashthat our breakeven volume is 25,000 units. I was happy that we reached that sales goal in each of our first two years.? But, here's the strange? thing: In our first? year, we sold 25,000 units and indeed we broke even.? Then, in our second year we sold the same volume and had a? signficant, positive operating income. I? didn't complain, of course. . . but? here's the bad part. In our third? year, we sold 20?% more?candy, but our operating income dropped by nearly 90% from what it was in the second? year! We? didn't change our selling price or cost structure over the past three years and have no? price, efficiency, or spending variances . . . so? what's going? on?!"

Absorption Costing	2016	2017	2018
Sales (units)	25,000	25,000	30,000
Revenues	$2,075,000	$2,075,000	$2,490,000
Cost of goods sold
Beginning inventory	0	0	380,000
Production	1,900,000	2,280,000	1,900,000
Available for sale	1,900,000	2,280,000	2,280,000
Deduct ending inventory	0	(380,000)	0
Adjustment for production-volume variance	0	(320,000)	0
Cost of goods sold	1,900,000	1,580,000	2,280,000
Gross margin	175,000	495,000	210,000
Selling and administrative expenses (all fixed)	175,000	175,000	175,000
Operating income	$0	$320,000	35,000

Beginning inventory	0	0	5,000
Production (units)	25,000	30,000	25,000
Sales (units)	25,000	25,000	30,000
Ending inventory	0	5,000	0
Variable manufacturing cost per unit	$12	$12	$12
Fixed manufacturing overhead costs	$1,600,000	$1,600,000	$1,600,000
Fixed manuf. costs allocated per unit produced	$64	$64	$64

What denominator level is HoneylandHoneyland using to allocate fixed manufacturing costs to the? candy? How is HoneylandHoneyland disposing of any favorable or unfavorable? production-volume variance at the end of the? year? Explain your answer briefly.
2.	How did HoneylandHoneyland?'s accountants arrive at the breakeven volume of 25 comma 00025,000 ?units?
3.	Prepare a variable? costing-based income statement for each year. Explain the variation in the variable costing operating income for each year based on contribution margin per unit and sales volume.
4.	Reconcile the operating incomes under variable costing and absorption costing for each? year, and use this information to explain to JeffJeff AlredAlred the positive operating income in 20172017 and the drop in operating income in 20182018.