1) What is the net operating income (loss) in Year 1 under absorption costing? What is the net operating income (loss) in Year 2 under absorption costing?

2) What is the net operating income (loss) in Year 1 under variable costing? What is the net operating income (loss) in Year 2 under variable costing?

3) Make a note of the absorption costing net operating income (loss) in Year 2.

At the end of Year 1, the companys board of directors set a target for Year 2 of net operating income of $220,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 5,000 units.

What is the net operating income (loss) in Year 2 under absorption costing?

4) The net operating income (loss) under absorption costing is less than the net operating income (loss) under variable costing in Year 2 because (select all that is correct):

a) units were left over from the previous year

b) the cost of goods sold is always under variable costing than under absorption costing

c) sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing

A B 1 Chapter 7: Applying Excel 2 3 Data 4 $ 357 5 Selling price per unit Manufacturing costs: Variable per unit produced: Direct materials 6 $ 123 Direct labor 50 9 29 10 $ 170,000 Variable manufacturing overhead Fixed manufacturing overhead per year Selling and administrative expenses: Variable per unit sold 11 12 $ 9 13 Fixed per year $ 96,000 14 15 Year 1 Year 2 16 0 17 Units in beginning inventory Units produced during the year Units sold during the year 3,400 2,500 2,900 18 2,900