ACCOUNTING:

Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,200,000 Cost of goods sold: Cost of goods manufactured $10,000 Ending inventory (168,000) Total cost of goods sold (672,000) Grons profit 6528,000 Selling and administrative expenses (209,000) Operating income $239,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin Saxon, Inc Variable Costing Income Statement For the Year Ended December 31 Sale $1,200,000 Variable cost of goods sold Variable cost of good manufactured S600,000 Ending inventory (120,000) Total variable cost of goods told (480,000) Manufacturing margin 5720,000 Variable selling and administrative expense (224,000) Contribution margin co 1496,000 Pod manufacturing costs $240,000 Fedeling and administrative per 65,000 Total fixed cost (305,000) Operating income $191,000 1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. The preparesimtar Income statements at a production level 10,000 units higher and add that information to the table. Assume that totaled costs, unit variable costs, unt sale price and the sales levels are the same at both production levels Operating Income Original Production Original Production Level Variable Additional 10,000 Level Absorption Units-Absorption Additional 10,000 Units-Variable 2. What is the change in operating income from producing 10,000 addtional unts under absorption conting? 3. What is the change in operating income from producing 10,000 additional unts under variable conting? 4. What would be your recommendation to the production manager 1. Do not produce the extra 10.000 units. The increase in operating income under absorption costing is due to feed manufacturing costs and held tow and the additional inventory will lead to higher handling, storage, Finanong, and obsolescence out Produce the extra 10,000 units Operating income will be increased, and the production manager will receive price for creating higher its Do not produce the extra 10,000 units Operating income does not change under absorption costing when the additional units are produced d. Produce the extra 10,000 units ways good idea to have extracts on hand and keen the factory operating at capact, even the sand