Question
Barbara Jones has been trying to convince her boss, Michael Brown, to use variable costing for internal reporting purposes. If we could predict demand
Barbara Jones has been trying to convince her boss, Michael Brown, to use variable costing for internal reporting purposes. "If we could predict demand better, it wouldn't be an issue," argued Barbara. Michael doesn't think it is worth the extra effort or confusion of maintaining two sets of books. As a last resort, Barbara has prepared income statements under five different scenarios of production volume. She believes that if this doesn't convince Michael that their current income statements have been misleading, nothing will. The following table shows the inventory unit data under five scenarios. Each scenario should be considered independently. Scenario B C D E Beginning inventory 200 200 200 200 200 Production 500 600 700 800 900 Sales (700) (700) (700) (700) (700) Ending inventory 0 100 200 300 400 Barbara gathered the following information from the accounting records. Fixed manufacturing costs per unit were determined based on normal production of 700 units per year. The 200 units in beginning inventory are valued at $56.00. Sales price per unit $ 98.00 Variable manufacturing costs per unit Fixed manufacturing costs per unit Total fixed manufacturing costs Total selling expense (all fixed) $ 19.00 $ 43.20 $ 30,240 $ 24,650
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