2. Change all of the numbers in the data area of your worksheet so that it looks like this:

If your formulas are correct, you should get the correct answers to the following questions.

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

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

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

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

(e) The net operating income (loss) under absorption costing is less than the net operating income (loss) under variable costing in Year 2 because: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

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 $130,000 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 5,200 units.

(a) Would this change result in a bonus being paid to the CEO? Multiple choice 1

• Yes

• No

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

(c) Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,700 units per year? Multiple choice 2

• Yes

• No

A Chapter 6: Applying Excel Selling price per unit Manufacturing costs: Variable per unit produced: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year Selling and administrative expenses: Variable per unit sold Fixed per year Units in beginning inventory Units produced during the year Units sold during the year 1 2 3 Data 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 $ 367 158 73 31 150,800 $ 3 $ 60,000 Year 1 GA GA $ $ LA GA $ $ B GA 0 2,900 2,700 Year 2 2,600 2,700