Answered step by step
Verified Expert Solution
Question
1 Approved Answer
1. The PTI Company sells its product at $3.00 per unit. PTI uses a FIFO costing system, and a new burden rate for allocating overhead
1. The PTI Company sells its product at $3.00 per unit. PTI uses a FIFO costing system, and a new burden rate for allocating overhead is determined each year by dividing the overhead by units produced. The following information pertains to the first two years of operations: Year 1 1,000 units 1,400 units Year 2 1,200 units 1,000 units Sales Production Costs Direct manufacturing costs Overhead (all fixed) Variable SG&A Fixed SG&A $700 $700 $1,000 $400 $500 $700 $1,200 $400 a. For each year, calculate income using absorption costing. b. Some firms use variable costing instead of absorption costing. Under variable costing, all fixed costs both manufacturing and SG&A are reported as expenses in the period in which they occur. For each year, calculate income using variable costing. c. Compare your income calculations across the two costing approaches. Are they different? If So, why? d. In class, we discussed why evaluating firm managers using absorption costing may encourage them to engage in dysfunctional behaviors. That said, are there circumstances in which you would recommend evaluating managers using absorption costing information? List and describe at least 2 such circumstances
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started