5-14Naylor Company had $210,000 of net income in 2016 when the selling price per unit was $150, the variable costs per unit were $90, and the fixed costs were $570,000. Management expects per unit data and total fixed costs to remain the same in 2017. The president of Naylor Company is under pressure from stockholders to increase net income by $52,000 in 2017.

Instructions Part 1: Compute the number of units sold in 2016.

Part 2:Compute the number of units that would have to be sold in 2017 to reach the stockholders' desired profit level.

Part 3:Assume that Naylor Company sells the same number of units in 2017 as it did in 2016. What would the selling price have to be in order to reach the stockholders' desired profit level?

Compute net income under different alternatives.

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P6-7A Jackson Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2016, the first year of operations, Jackson produced 4,000 tons of plastic and sold 3,500 tons. In 2017, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,000, variable manufacturing costs were 15% of the sales price of units produced, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were $2,800,000, and fixed administrative expenses were $500,000.

Instructions

Part 4:Prepare income statements for each year using variable costing. (Use the format fromIllustration 6A.5.)

(a) 2017 $2,700,000

Part 5:Prepare income statements for each year using absorption costing. (Use the format fromIllustration 6A.4.)

(b) 2017 $2,350,000

PArt 6:Reconcile the differences each year in net income under the two costing approaches.

Part 7:Comment on the effects of production and sales on net income under the two costing approaches.

Prepare absorption and variable costing income statements and reconcile differences between absorption and variable costing income statements when sales level and production level change. Discuss relative usefulness of absorption costing versus variable costing.