1.Prepare an analysis of absorption and variable costing income for years 20x3 and 20x4 (in 000's)

2. Reconcile the differences in absorption and variable costing incomes for both years.

Note: My excel sheet is 90% complete; need help reconciling the differences between absorption and variable

4. Part A DRAFT Budgeted Robie Reid Hiking Boots Budgeted Income Statement Scenario II (Savings-Midsole production Outsourced) Robie Reid Hiking Boots Annual Market Demand (Pairs) Revenue (125,000 x $50) Less: Cost of goods sold Annual Market Demand (Units) Selling Price 125,000 $6,250,000 $5,585,000 Contribution margin Fixed costs RR Advertising Leasing: Cutting/Sewing/Midsole Capital costs: Desired return (20%) on investment Renovations Required $960k x 20% Design / R&D $560k x 20% Additional Resewarch Req'd $25k x 20% Less: Fixed selling and admin $665,000 20X5 Budget 125,000 $50.00 Direct materials used Direct labour Variable overhead Variable selling & administrative TOTAL Variable Costs Annual 20X5 Budget Annual Market Demand (Units) $6,250,000.00 Selling Price $50.00 $21.38 $16.52 $5.28 $1.50 $44.68 $2,672,500.00 $2,065,000.00 $660,000.00 $187,500.00 $5,585,000.00 Direct materials used Direct labour Variable overhead Variable OH reduction $1 per pair Variable selling & administrative Soiling reduction .3 x $25.20 TOTAL Variable Costs $21.38 $2,672,500.00 $16.52 $2,065,000.00 $5.28 $660,000.00 (1.00) (125,000) 1.50 $187,500.00 (7.56) (945,000) $43.68 $4,515,000.00 $(1,070,000.00) $5.32 $665,000.00 $360,000 $120,000 $84,000 $192,000 $112,000 $5,000 $873,000 Contribution margin Robie Reid Hiking Boots Budgeted Schedule of Cost of Goods manufactured (Original Scenario) $2,672,500 Direct labour $2,065,000 Fixed costs RR Advertising Leasing: Cutting/Sewing/Midsole $360,000 $120,000 Desired return (20%) on investment Renovations Required $960k x 20% Design / R&D $560k x 20% Additional Resewarch Req'd $25k x 20% $- Manufacturing overhead Variable overhead (RR Specific) Variable selling & admin (RR Specific) Budgeted Operating Income $660,000 $187,500 $847,500 Cost of Goods manufactured $5,585,000 $6,250,000.00 Contribution margin $6.32 $1,735,000.00 $360,000 $120,000 $360,000 $120,000 $(38,400) $84,000 Fixed costs $(208,000) 4. Part B Direct materials Difference $5.32 Fixed costs Budgeted Operating Income Annual 20X5 Budget 20X5 Budget 125,000 $360,000 $120,000 $84,000 $192,000.00 $112,000.00 $5,000.00 $873,000.00 $(208,000.00) Manufacturing overhead Advertising Leasing: Reduction of costs Leasing: Cutting/Sewing/Midsole Desired return (20%) on investment Renovations Required $960k x 20% Renovations Reduction of 30% Design / R&D $560k x 20% Design / R&D 25% reduction Additional Resewarch Req'd $25k x 20% $Budgeted Operating Income $192,000.00 $(57,600.00) $112,000.00 $(28,000.00) $5,000.00 $749,000.00 $986,000.00 $(124,000.00) $1,194,000.00 Exhibit 1 Brown Boot Company Income statement December 31, 20X2-20X4 (20X5 budget) 20X2 Volume produced Volume sold Selling price per pair $ 20X3 1,275,000 1,274,500 97.15 $ 20X4 1,250,000 1,225,000 97.15 $ 20X5 budget 1,250,000 1,197,500 96.60 $ 1,200,000 1,175,000 96.50 (all figures in 000s) Total revenue Cost of goods sold Gross margin Variable selling and admin expense Fixed selling and admin expense Total expenses Surplus (deficit) $ $ $ 123,818 82,079 41,739 $ $ 119,009 87,638 31,371 $ $ $ $ $ $ 115,679 86,613 29,066 $ 113,388 81,061 32,327 7,429 $ 5,950 $ 8,098 $ 7,946 18,789 26,218 15,521 $ $ $ 17,685 23,635 7,736 $ $ $ 17,035 25,133 3,933 $ $ $ 17,035 24,981 7,346 Additional information Year Budgeted sales (pairs) Budgeted selling price Budgeted variable selling and admin costs per pair Preferred number of pairs in ending finished goods inventory 20X2 20X3 20X4 1,250,000 $ 98.00 $4.90 1,250,000 $ 98.00 $4.90 1,225,000 $ 97.00 $4.90 20,000 20,000 20,000 20X5 1,175,000 $ 96.50 maintain 2014 level 20,000 Exhibit 2 Brown Boot Company Statement of cost of goods sold December 31, 20X2-20X4 (20X5 budget) $ in 000s 20X2 Units Cost Beginning finished goods inventory Add: Manufactured Available for sale Deduct: Ending finished goods inventory Unadjusted cost of goods sold Adjustment for over(under-) applied overhead (Exhibit 3) Cost of goods sold 20X3 Units Cost 20X4 Units Cost 20X5 budget Units Cost 20,000 1,275,000 1,295,000 1,302 81,843 83,145 20,500 1,250,000 1,270,500 1,316 89,380 90,696 45,500 1,250,000 1,295,500 3,253 89,709 92,962 98,000 1,200,000 1,298,000 7,033 78,312 85,345 20,500 1,316 45,500 3,253 98,000 7,033 123,000 7,744 1,274,500 81,829 1,225,000 87,443 1,197,500 85,929 1,175,000 77,601 1,274,500 250 82,079 1,225,000 195 87,638 1,197,500 684 86,613 1,175,000 3,460 81,061 Note: For clarity, units are shown in full while costs are shown in 000s. Exhibit 3 Brown Boot Company Schedule of cost of goods manufactured December 31, 20X2-20X4 (20X5 budget) (in 000s) 20X2 Direct materials used $ 47,239 Direct labour 22,504 Manufacturing overhead Variable manufacturing costs Electricity 1,984 Fuel 1,145 Inspection 458 Repair and maintenance 2,671 Rework and wastage 1,374 Total variable overhead costs $ 7,632 Fixed manufacturing overhead Depreciation 4,058 Property taxes and insurance 94 Supervisory salaries 236 Utilities 330 Total fixed overhead costs $ 4,718 Actual overhead $ 12,350 1 Adjust for over-/underapplied overhead ($250) Total manufacturing overhead costs $ 12,100 2 Total cost of goods manufactured $ 81,843 1 BBC uses a normal costing system to apply overhead to inventory. Over- or underapplied overhead is written off to cost of goods sold at the end of the year. 2 BBC follows just-in-time inventory management. As such, beginning and ending work-in-process inventories are negligible. Manufacturing overhead applied Variable $ 7,446,000 Fixed 4,653,750 $ 12,099,750 (In 000s) $ 12,100 Actual overhead 12,350 Overapplied (underapplied) ($250) 20X3 $ $ $ $ $ $ $ $ $ 50,715 25,340 2,212 1,276 510 2,978 1,531 8,507 4,311 100 251 351 5,013 13,520 ($195) 13,325 89,380 8,200,000 5,125,000 13,325,000 13,325 13,520 ($195) 20X4 $ $ $ $ $ $ $ $ $ 46,786 28,135 20X5 Budget $ 43,992 22,308 2,603 1,502 601 3,504 1,802 10,012 $ 4,696 109 273 382 5,460 15,472 ($684) 14,788 89,709 $ $ $ $ 2,603 1,502 601 3,504 1,802 10,012 4,696 109 273 382 5,460 15,472 ($3,460) 12,012 78,812 9,100,000 $ 7,392,000 5,687,500 4,620,000 14,787,500 $ 12,012,000 14,788 $ 12,012 15,472 15,472 ($684) ($3,460) Exhibit 4 (Total costs rounded to 2 decimals) Iron Horse work boot Standard cost per pair Qty Measure Cost per Direct material Leather (upper and lining) Other lining Structural1 Sole Direct labour Cutting Stitching Forming Soling Finishing Manufacturing overhead (applied based on direct labour hours) Variable overhead2 Fixed overhead3 1.00 0.25 2.00 2.00 Square metre Square metre each each $ $ $ $ 19.50 $ 20.00 1.95 4.13 $ 19.50 5.00 3.90 8.26 36.66 0.09 0.14 0.25 0.18 0.11 0.77 Hour Hour Hour Hour Hour $ $ $ $ $ 25.00 $ 25.00 25.00 25.00 19.00 2.25 3.50 6.25 4.50 2.09 18.59 0.77 DLH 0.77 DLH $ $ 8.00 $ 5.00 $ $ 6.16 3.85 10.01 65.26 Total standard cost per pair of boots 1 2 Metal parts including shank, and steel toe Including eyelets, hooks, glue, waxed thread, cutting wastage on leather and variable factory costs 3 Factory costs including depreciation Based on annual production of 1,250,000 pairs Total cost Exhibit 5 Iron Horse work boot Actual cost per pair 20X4 Actual pairs produced 1,250,000 Qty Measure Cost per Direct material Leather (upper and Square lining) 0.90 metre $ 22.40 Other lining 0.26 metre $ 19.65 Structural1 2.00 each $ 1.98 Sole 2.00 each $ 4.10 Total cost $ $ Direct labour Cutting Stitching Forming Soling Finishing 0.07 0.20 0.32 0.20 0.12 0.91 Manufacturing overhead1 Variable overhead 0.91 Fixed overhead 0.91 20.1600 5.1090 3.9600 8.2000 37.4290 Hour Hour Hour Hour Hour $ $ $ $ $ 25.18 25.18 25.18 25.18 21.80 $ 1.7626 5.0360 8.0576 5.0360 2.6160 22.5082 DLH DLH $ $ 8.00 5.00 $ 7.2800 4.5500 11.8300 71.7672 Total normal cost per pair of boots 1 BBC uses normal costing to apply overhead based on actual direct labour hours and standard variable and fixed overhead application rates per hour $ $ Iron Horse work boot Actual cost per pair 20X3 Actual pairs produced 1,250,000 Qty Measure Cost per Direct material Leather (upper and Square lining) 1.10 metre $ 21.10 Other lining 0.26 metre $ 19.70 1 Structural 2.00 each $ 1.95 Sole 2.00 each $ 4.17 Total cost $ $ Direct labour Cutting Stitching Forming Soling Finishing 0.14 0.14 0.26 0.18 0.10 0.82 Manufacturing overhead1 Variable overhead 0.82 Fixed overhead 0.82 23.2100 5.1220 3.9000 8.3400 40.5720 Hour Hour Hour Hour Hour $ $ $ $ $ 25.10 25.10 25.10 25.10 22.00 $ 3.5140 3.5140 6.5260 4.5180 2.2000 20.2720 DLH DLH $ $ 8.00 5.00 $ 6.5600 4.1000 10.6600 71.5040 Total normal cost per pair of boots 1 BBC uses normal costing to apply overhead based on actual direct labour hours and standard variable and fixed overhead application rates per hour Iron Horse work boot Actual cost per pair 20X2 Actual pairs produced 1,275,000 Qty Measure Cost per Total cost Direct material Leather (upper and Square lining) 1.00 metre $ 19.85 $ 19.8500 Other lining 0.25 metre $ 20.00 5.0000 Structural1 2.00 each $ 1.95 3.9000 Sole 2.00 each $ 4.15 8.3000 $ 37.0500 Direct labour Cutting 0.08 Hour $ 25.00 $ 2.0000 Stitching 0.13 Hour $ 25.00 3.2500 Forming 0.24 Hour $ 25.00 6.0000 Soling 0.18 Hour $ 25.00 4.5000 Finishing 0.10 Hour $ 19.00 1.9000 0.73 17.6500 1 Manufacturing overhead Variable overhead 0.73 DLH $ 8.00 $ 5.8400 Fixed overhead 0.73 DLH $ 5.00 3.6500 $ 9.4900 Total normal cost per pair of boots $ 64.1900 1 BBC uses normal costing to apply overhead based on actual direct labour hours and standard variable and fixed overhead application rates per hour $ $ 20x3 20x4 Actual Units 1,225,000 1,197,500 Budgeted Units 1,250,000 1,225,000 Budgeted Price $98.00 $97.00 Sales Volume Variance (2,450,000) (2,667,500) 20x3 20x4 Actual Price $97.15 $96.60 Budgeted Price 98.00 97.00 Actual Units $1,225,000 $1,197,500 Selling Price Variance (1,041,250) (479,000) 20x3 20x4 DM AQ x AP $50,715,000 $46,786,250 DM AQ x Std Price 48,512,500 43,637,500 Std Qty x Std Price 45,825,000 45,825,000 Direct Material Price Variance (2,202,500) (3,148,750) Direct Material Qty Variance (2,687,500) 2,187,500 Flex Budget Variance (4,890,000) (961,250) 20x3 20x4 DL AQ x AP $25,340,000 $28,135,250 DL AQ x Std Price 24,875,000 27,537,500 Std Qty x Std Price 23,237,500 23,237,500 Direct Labour Rate Variance (465,000) (597,750) Direct Labour Efficency Variance (1,637,500) (4,300,000) Flex Budget Variance (2,102,500) (4,897,750) VOH Std Hr x Std Rate 7,700,000 7,700,000 VOH Spending Variance (307,000) (912,000) VOH Efficency Variance (500,000) (1,400,000) VOH Flex Budget (807,000) (2,312,000) 20x3 20x4 20x3 20x4 VOH VOH Actual Hr x Act Rate Actual Hr x Std Rate 8,507,000 8,200,000 10,012,000 9,100,000 FOH Actual 5,013,000 5,460,000 FOH Flexible Budget 5,125,000 5,687,500 FOH Spending Variance 112,000 227,500 Brown Boot Company Brown Boot Company Income Statement (Absorbtion Costing)Income Statement (Absorbtion Costing) Statement of cost of goods sold (Absorbtion)Statement of cost of goods sold (Absorbtion) (in 000s) (in 000s) Units Cost 20x3 20x3 20,500 $1,316 1,250,000 $89,380 1,270,500 $90,696 ### 20X3 1,225,000 $119,009 $87,638 Units Sold Total revenue Less: Cost of goods sold Gross margin $31,371### Variable sellling and admin Fixed selling and admin Total expenses $5,950 $17,685 $23,635 Surplus (deficit) 20X4 1,197,500 $115,679 $86,613 $29,066 $8,098 $17,035 $25,133 $7,736### $3,933 Brown Boot Company Income Statement (Variable Costing) (in 000s) Volume sold Total revenue Less: Cost of goods sold Underapplied overhead Variable selling & admin TOTAL variable Contribution margin Fixed expenses: Fixed MOH Overapplied overhead Fixed selling and admin Total fixed expenses Surplus (deficit) Reconciliation Absorbtion-costing income Add: Fixed overhead released from beginning inventory Less: Fixed overhead deferred in ending inventory Variable-costing income Diff 20X3 1,225,000 $119,009 $82,625 $307 $5,950 $88,882 $30,127 20X4 1,197,500 $115,679 $81,153 $912 $8,098 $90,163 $25,516 $5,013 $(112.0) $17,685 $22,586 $7,541 $5,460 $(227.5) $17,035 $22,268 $3,248 $7,736 164 (364.0) $7,536 $3,933 364 (784.0) $3,513 $5 $(265) Beginning finished goods inventory Add: COGM Available for sale Deduct: Ending finished goods inventory Adjusted cost of goods sold 45,500 1,225,000 $3,253 $195 $87,638 Units 20x4 45,500 1,250,000 1,295,500 Cost 20x4 $3,253 $89,709 $92,962 98,000 $7,033 $684 $86,613 1,197,500 Brown Boot Company Statement of cost of goods sold (Variable)Statement of cost of goods sold (Variable) (in 000s) Units Cost Units Cost 20x3 20x3 20x4 20x4 Beginning finished goods inventory 20,500 $1,316 45,500 $3,253 Add: COGM 1,250,000 $84,562 1,250,000 $84,933 Available for sale 1,270,500 $85,878 1,295,500 $88,186 Deduct: Ending finished goods inventory 45,500 $3,253 98,000 $7,033 1,225,000 Unadjusted COGS $82,625 1,197,500 Brown Boot Company (Exhibit 3) Schedule of cost of goods manufacturedSchedule of cost of goods manufactured (in 000s) Absorbtion Variable 20x3 20x4 20x3 20x4 1,250,000 1,250,000 1,250,000 1,250,000 50,715 46,786 50,715 46,786 25,340 28,135 25,340 28,135 Unit produced DM DL Variable MOH Electricity Fuel Inspection Repair and maintenance Rework and waste TOTAL variable manufacturing costs Fixed manufacturing overhead Depreciation Property taxes and insurance Supervisory salaries Utilities TOTAL fixed overhead costs Adjustment for over/under applied Inv 2,212 1,276 510 2,978 1,531 8,507 2,603 1,502 601 3,504 1,802 10,012 2,212 1,276 510 2,978 1,531 8,507 - 2,603 1,502 601 3,504 1,802 10,012 4,311 100 251 351 5,013 13,520 (195) 13,325 4,696 109 273 382 5,460 15,472 ### (684) ### 14,788 ### 89,380 89,709 ### 84,562 84,933 4.37 $4,818 $4,776 $81,153 TOTAL cost of goods manufactured (Exhibit 2) 4.01 $0.00 20,500.00 8.00 164,000.00 164.00 45,500.00 8.00 364,000.00 364.00 45,500.00 8.00 364,000.00 364.00 98,000.00 8.00 784,000.00 784.00 (25,000.00) (52,500.00) - - Iron Horse Work Boot Actual cost per pair 1,250,000 Units 20x3 Quantity Leather Other lining Structural Sole Cost per 1.10 0.26 2.00 2.00 Quantity Direct labour Cutting Stiching Forming Soling Finishing Total Cost $21.10 $19.70 $1.95 $4.17 Cost per 0.14 0.14 0.26 0.18 0.10 0.82 $25.10 $25.10 $25.10 $25.10 $22.00 AQ x AP AQ x SP SQ x SP $23.21 $23.21 $21.45 $19.50 $5.12 $5.12 $5.20 $5.00 $3.90 $3.90 $3.90 $3.90 $8.34 $8.34 $8.26 $8.26 $40.5720 $40.5720 $38.8100 $36.6600 Total Cost AQ x AP AQ x SP SQ x SP $3.51 $3.51 $6.53 $4.52 $2.20 $20.2720 $3.51 $3.51 $6.53 $4.52 $2.20 $20.2720 $3.50 $3.50 $6.50 $4.50 $1.90 $19.9000 $2.25 $3.50 $6.25 $4.50 $2.09 $18.5900 Iron Horse Work Boot Iron Horse Work Boot Actual cost per pair Standard Cost per pair 1,250,000 Units 1,250,000 Units 20x4 Quantity Cost per Total Cost AQ x AP AQ x SP SQ x SP Quantity Cost per Total Cost Leather 0.90 $22.40 $20.16 $20.16 $17.55 $19.50 Direct material 1.00 $19.50 $19.50 Other lining 0.26 $19.65 $5.11 $5.11 $5.20 $5.00 Leather 0.25 $20.00 $5.00 Structural 2.00 $1.98 $3.96 $3.96 $3.90 $3.90 Other lining 2.00 $1.95 $3.90 Sole 2.00 $4.10 $8.20 $8.20 $8.26 $8.26 Structural 2.00 $4.13 $8.26 $37.4290 $37.4290 $34.9100 $36.6600 Sole $36.6600 Direct labour Cutting Stiching Forming Soling Finishing Quantity Cost per Total Cost AQ x AP AQ x SP SQ x SP Direct labour 0.07 $25.18 $1.76 $1.76 $1.75 $2.25 Cutting 0.20 $25.18 $5.04 $5.04 $5.00 $3.50 Stiching 0.32 $25.18 $8.06 $8.06 $8.00 $6.25 Forming 0.20 $25.18 $5.04 $5.04 $5.00 $4.50 Soling 0.12 $21.80 $2.62 $2.62 $2.28 $2.09 Finishing 0.91 $22.5082 $22.5082 $22.0300 $18.5900 0.09 0.14 0.25 0.18 0.11 0.77 $25.00 $25.00 $25.00 $25.00 $19.00 $2.25 $3.50 $6.25 $4.50 $2.09 $18.5900