1.Electricoil is a division of Meier Products Corporation. The division manufactures and sells an electric coil used in a wide variety of applications. During the coming year, it expects to sell 200,000 units for $9 per unit. Mark Barnes is the division manager. He is considering producing either 200,000 or 250,000 units during the period. Other information is presented in the schedule.

Division Information for 2017

Beginning inventory0

Expected sales in units200,000

Selling price per unit$9

Variable manufacturing costs per unit$3

Fixed manufacturing overhead costs (total)$500,000

Fixed manufacturing overhead costs per unit:

Based on 200, units$2.50 per unit ($50,000 200,000)

Based on 250, units$2.00 per unit ($500,000 250,000)

Manufacturing costs per unit:

Based on 200, units$5.50 per unit ($3 variable + $2.50 fixed)

Based on 250, units$5.00 per unit ($3 variable + $2.00 fixed)

Variable selling and administrative expense$0.40

Fixed selling and administrative expense (total)$15,000

Instructions

(a)an absorption costing income statement, with one column showing the results if 200 units are

produced and one column showing the results if 250,000 units are produced.

(b)variable costing income statement, with one column showing the results if 200,000 units are

produced and one column showing the results if 250,000 units produced.

(c)Reconcile the differences in net incomes under the two approaches and explain what accounts for this

difference.

ELECTRICOIL DIVISION

Income Statement

For the Year Ended December 31, 2017

Absorption Costing

(a)

200,000 Produced 250,000 Produced

Sales(# unitsx$9) 1,800,000 1,800,000

Cost of goods sold

Gross profit

Var selling & Admin expenses

Fxd selling & Admin expenses

Net Income

ELECTRICOIL DIVISION

Income Statement

For the Year Ended December 31, 2017

Variable Costing

(b)

200,000 Produced 250,000 Produced

Sales(# unitsx$9) 1,800,000 1,800,000

______ ______ _______

_______ _______ _______

Contribution margin _______ ________

________ _______ ________

________ ________ _________

Net Income ________ __________

part c. Reconcile the differences in net incomes under the two approaches and explain what accounts for this

difference. (please don't forget this section)

2.An investment banker is analyzing two companies that specialize in the production and sale of candied yams. Traditional Yams uses a labor-intensive approach, and Auto-Yams uses a mechanized system. CVP income statements for the two companies are shown below.

TraditionalYams Auto-Yams

Sales $ 391,000 $ 391,000

Variable costs 323,000156,000

Contribution margin 68,000235,000

Fixed costs 28,000195,000

Net income $ 40,000 $ 40,000

The investment banker is interested in acquiring one of these companies. However, she is concerned about the impact that each company's cost structure might have on its profitability.

Determine the effect on each company's net income if sales decrease by20 % and if sales increase by7 %. Do not prepare income statements. (Round answers to 2 decimal

% Change in Net Income

Sales decrease by 20 %

%Traditional Yams ___

%Auto-Yams ____

%Sales increase by 7%

%Traditional Yams ____

%Auto-Yams _____