Download the Applying Excel form and enter formulas in all cells that contain question marks.

For example, in cell B26 enter the formula "= B17".

After entering formulas in all of the cells that contained question marks, verify that the dollar amounts match the numbers in Review Problem 1.

The LIFO inventory flow assumption is used throughout the problem.

Check your worksheet by changing the units sold in the Data to 6,000 for Year 2. The cost of goods sold under absorption costing for Year 2 should now be $240,000. If it isnt, check cell C41. The formula in this cell should be =IF(C26

Save your completed Applying Excel form to your computer and then upload it here by clicking Browse. Next, click Save. You will use this worksheet to answer the questions in Part 2.

Change all of the numbers in the data area of your worksheet so that it looks like this:

Selling price per unit $354

Direct materials $125

Direct Labor $74

Variable manufacturing overhead $35

Fixed manufacturing overhead per year $161,200

Variable per unit sold $3

Fixed Per Year $70,000

Units in beginning inventory Year 1 $0

Units produced during the year Year 1 $3100, Year 2 $2600

Units sold during the year Year 1 $2700, Year 2 $2700

If your formulas are correct, you should get the correct answers to the following questions.

(a) What is the net operating income (loss) in Year 1 under absorption costing? (Loss amounts should be indicated with a minus sign.)

b) What is the net operating income (loss) in Year 2 under absorption costing? (Loss amounts should be indicated with a minus sign.)

c) What is the net operating income (loss) in Year 1 under variable costing? (Loss amounts should be indicated with a minus sign.)

(d) What is the net operating income (loss) in Year 2 under variable costing? (Loss amounts should be indicated with a minus sign.)

(e) The net operating income (loss) under absorption costing is less than the net operating income (loss) under variable costing in Year 2 because: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

check all that apply

• Units were left over from the previous year.unanswered
• The cost of goods sold is always less under variable costing than under absorption costing.unanswered
• Sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing.

Make a note of the absorption costing net operating income (loss) in Year 2.

At the end of Year 1, the companys board of directors set a target for Year 2 of net operating income of $160,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 5,200 units.

(a) Would this change result in a bonus being paid to the CEO?

multiple choice 1

Yes

No

(b) What is the net operating income (loss) in Year 2 under absorption costing? (Loss amounts should be indicated with a minus sign.)

(c) Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,700 units per year?