Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Chataqua Can Company manufactures metal cans used in the food-processing industry. A case of cans sells for $25. The variable costs of production for one

Chataqua Can Company manufactures metal cans used in the food-processing industry. A case of cans sells for $25. The variable costs of production for one case of cans are as follows:

Direct material $ 6.00
Direct labor 3.00
Variable manufacturing overhead 5.00
Total variable manufacturing cost per case $ 14.00

Variable selling and administrative costs amount to $0.50 per case. Budgeted fixed manufacturing overhead is $400,000 per year, and fixed selling and administrative cost is $40,500 per year. The following data pertain to the companys first three years of operation.

Year 1 Year 2 Year 3
Planned production (in units) 80,000 80,000 80,000
Finished-goods inventory (in units), January 1 0 0 23,000
Actual production (in units) 80,000 80,000 80,000
Sales (in units) 80,000 57,000 91,500
Finished-goods inventory (in units), December 31 0 23,000 11,500

Actual costs were the same as the budgeted costs.

Required:

  1. Prepare operating income statements for Chataqua Can Company for its first three years of operations using:

    A. Absorption costing.
    1. B. Variable costing.
  2. Reconcile Chataqua Can Companys operating income reported under absorption and variable costing for each of its first three years of operation. Use the shortcut method.

  3. Suppose that during Chataquas fourth year of operation actual production equals planned production, actual costs are as expected, and the company ends the year with no inventory on hand.

    1. What will be the difference between absorption-costing income and variable-costing income in year 4?

      1. What will be the relationship between total operating income for the four-year period as reported under absorption and variable costing?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing Theory And Its Application

Authors: Hanson Arthur Warren, Arthur W. Hanson

1st Edition

1406753351, 978-1406753356

More Books

Students also viewed these Accounting questions