Absorption Costing 2016 2017 2018 23,000 23,000 25,300 Sales (units) Revenues $ 1,909,000 $ 1,909,000 $ 2,099,900 Cost of goods sold Beginning inventory 0 0 174,800 Production 1,748,000 1,922,800 1,748,000 Available for sale 1,748,000 1,922,800 1,922,800 Deduct ending inventory 0 (174,800) 0 0 (154,100) 0 Adjustment for production-volume variance 1,748,000 Cost of goods sold 1,593,900 1,922,800 Gross margin 161,000 315,100 177,100 Selling and administrative expenses (all fixed) 161,000 161,000 161,000 $ 0 $ 154,100 16,100 Operating income Beginning inventory 0 0 2,300 Production (units) 23,000 25,300 23,000 Sales (units) 23,000 23,000 25,300 Ending inventory 0 2,300 0 Variable manufacturing cost per unit $ 9 $ 9 $ 9 Fixed manufacturing overhead costs $ 1,541,000 $ 1,541,000 $ 1,541,000 Fixed manuf. costs allocated per unit produced $ 67 $ 67 $ 67 Supersweet uses standard costing to produce a particularly popular type of candy. Supersweet's President, Tim Macon was unhappy after reviewing the income statements for the first three years of business. He said, "I was told by our accountantsand in fact, I have memorizedthat our breakeven volume is 23,000 units. I was happy that we reached that sales goal in each of our first two years. But, here's the strange thing: In our first year, we sold 23,000 units and indeed we broke even. Then, in our second year we sold the same volume and had a signficant, positive operating income. I didn't complain, of course. . . but here's the bad part. In our third year, we sold 10% more candy, but our operating income dropped by nearly 90% from what it was in the second year! We didn't change our selling price or cost structure over the past three years and have no price, efficiency, or spending variances ... so what's going on?!" Requirement 1. What denominator level is Supersweet using to allocate fixed manufacturing costs to the candy? How is Supersweet disposing of any favorable or unfavorable production-volume variance at the e answer briefly. The denominator level used to allocate fixed manufacturing costs is 23,000 units. In 2017, 25,300 units were produced instead of the budgeted 23,000 unit We can see from Supersweet's income statements that it disposes of any production-volume variance against cost of goods sold. favorable production-volume variance; which, when written off, increased gross margin. Requirement 2. How did Supersweet's accountants arrive at the breakeven volume of 23,000 units? Total fived note Contribution marcin nor unit Requirement 1. What denominator level is Supersweet using to allocate fixed manufacturing costs to the candy? How is Supersweet disposing of any favorable or unfavorable production-volume variance at the end of the year? Explain your answer briefly. The denominator level used to allocate fixed manufacturing costs is 23,000 units. In 2017, 25,300 units were produced instead of the budgeted 23,000 units. This resulted in a We can see from Supersweet's income statements that it disposes of any production-volume variance against cost of goods sold. favorable production-volume variance; which, when written off, increased gross margin. Requirement 2. How did Supersweet's accountants arrive at the breakeven volume of 23,000 units? Total fixed costs Contribution margin per unit Breakeven quantity 2016 1,702,000 74 23,000 2017 1,702,000 $ 74 23,000 2018 1,702,000 $ 74 II 23,000 Absorption Costing 2016 2017 2018 23,000 23,000 25,300 Sales (units) Revenues $ 1,909,000 $ 1,909,000 $ 2,099,900 Cost of goods sold Beginning inventory 0 0 174,800 Production 1,748,000 1,922,800 1,748,000 Available for sale 1,748,000 1,922,800 1,922,800 Deduct ending inventory 0 (174,800) 0 0 (154,100) 0 Adjustment for production-volume variance 1,748,000 Cost of goods sold 1,593,900 1,922,800 Gross margin 161,000 315,100 177,100 Selling and administrative expenses (all fixed) 161,000 161,000 161,000 $ 0 $ 154,100 16,100 Operating income Beginning inventory 0 0 2,300 Production (units) 23,000 25,300 23,000 Sales (units) 23,000 23,000 25,300 Ending inventory 0 2,300 0 Variable manufacturing cost per unit $ 9 $ 9 $ 9 Fixed manufacturing overhead costs $ 1,541,000 $ 1,541,000 $ 1,541,000 Fixed manuf. costs allocated per unit produced $ 67 $ 67 $ 67 Supersweet uses standard costing to produce a particularly popular type of candy. Supersweet's President, Tim Macon was unhappy after reviewing the income statements for the first three years of business. He said, "I was told by our accountantsand in fact, I have memorizedthat our breakeven volume is 23,000 units. I was happy that we reached that sales goal in each of our first two years. But, here's the strange thing: In our first year, we sold 23,000 units and indeed we broke even. Then, in our second year we sold the same volume and had a signficant, positive operating income. I didn't complain, of course. . . but here's the bad part. In our third year, we sold 10% more candy, but our operating income dropped by nearly 90% from what it was in the second year! We didn't change our selling price or cost structure over the past three years and have no price, efficiency, or spending variances ... so what's going on?!" Requirement 1. What denominator level is Supersweet using to allocate fixed manufacturing costs to the candy? How is Supersweet disposing of any favorable or unfavorable production-volume variance at the e answer briefly. The denominator level used to allocate fixed manufacturing costs is 23,000 units. In 2017, 25,300 units were produced instead of the budgeted 23,000 unit We can see from Supersweet's income statements that it disposes of any production-volume variance against cost of goods sold. favorable production-volume variance; which, when written off, increased gross margin. Requirement 2. How did Supersweet's accountants arrive at the breakeven volume of 23,000 units? Total fived note Contribution marcin nor unit Requirement 1. What denominator level is Supersweet using to allocate fixed manufacturing costs to the candy? How is Supersweet disposing of any favorable or unfavorable production-volume variance at the end of the year? Explain your answer briefly. The denominator level used to allocate fixed manufacturing costs is 23,000 units. In 2017, 25,300 units were produced instead of the budgeted 23,000 units. This resulted in a We can see from Supersweet's income statements that it disposes of any production-volume variance against cost of goods sold. favorable production-volume variance; which, when written off, increased gross margin. Requirement 2. How did Supersweet's accountants arrive at the breakeven volume of 23,000 units? Total fixed costs Contribution margin per unit Breakeven quantity 2016 1,702,000 74 23,000 2017 1,702,000 $ 74 23,000 2018 1,702,000 $ 74 II 23,000