Electricollis a division of Meler Products Corporation. The division manufactures and sells an electric coll used in a wide variety of applications. During the coming year, it expects to sell 200,000 units for $9 per unit Mark Barnes is the division manager. He is considering producing either 200,000 or 250,000 units during the period. Other information is presented in the schedule. Division Information for 2017 Beginning inventory Expected sales in units 200,000 Selling price per unit $9 Copyright 2015 John Wiley & Sons, Inc. Weygandt, Financial and Managerial Accounting 20, Solutions Manual (For Instructor Use Only 20-3 $3 $500,000 $2.50 per unit ($50,000 - 200,000) $2.00 per unit ($500,000 + 250,000) Variable manufacturing costs per unit Fixed manufacturing overhead costs (total) Fixed manufacturing overhead costs per unit: Based on 200, units Based on 250, units Manufacturing costs per unit: Based on 200, units Based on 250, units Variable selling and administrative expense Fixed selling and administrative expense (total) $5.50 per unit($3 variable + $2.50 fixed) $5.00 per unit ($3 variable + $2.00 fixed) $0.40 $15,000 Instructions (a) Prepare an absorption costing income statement, with one column showing the results if 200 units are produced and one column showing the results if 250,000 units are produced. (b) Prepare a variable costing income statement, with one column showing the results if 200,000 units are produced and one column showing the results if 250,000 units produced. (c) Reconcile the differences in net incomes under the two approaches and explain what accounts for this difference (d) Discuce the relative usefulnese of the variable costing Income statemente versue the absorption costing income statements for decision making and for evaluating the managere performance ELECTRICOIL DIVISION Income Statement For the Year Ended December 31, 2017 Absorption Costing (a) 200,000 Produced 250,000 Produced Sales (#units X $9) 1,800,000 1,800,000 Note that "SALES" remain the same Cost of goods sold in BOTH columns Gross profit The problem is Var selling & Admin trying to show the expenses difference "Ending Fxd selling & Admin Inventory" makes expenses between costing Net Income methods. ELECTRICOIL DIVISION Income Statement For the Year Ended December 31, 2017 Variable Costing (b) Sales 200,000 Produced 1,800,000 250,000 Produced 1,800,000 (units x $9) Contribution margin Net Income Electricollis a division of Meler Products Corporation. The division manufactures and sells an electric coll used in a wide variety of applications. During the coming year, it expects to sell 200,000 units for $9 per unit Mark Barnes is the division manager. He is considering producing either 200,000 or 250,000 units during the period. Other information is presented in the schedule. Division Information for 2017 Beginning inventory Expected sales in units 200,000 Selling price per unit $9 Copyright 2015 John Wiley & Sons, Inc. Weygandt, Financial and Managerial Accounting 20, Solutions Manual (For Instructor Use Only 20-3 $3 $500,000 $2.50 per unit ($50,000 - 200,000) $2.00 per unit ($500,000 + 250,000) Variable manufacturing costs per unit Fixed manufacturing overhead costs (total) Fixed manufacturing overhead costs per unit: Based on 200, units Based on 250, units Manufacturing costs per unit: Based on 200, units Based on 250, units Variable selling and administrative expense Fixed selling and administrative expense (total) $5.50 per unit($3 variable + $2.50 fixed) $5.00 per unit ($3 variable + $2.00 fixed) $0.40 $15,000 Instructions (a) Prepare an absorption costing income statement, with one column showing the results if 200 units are produced and one column showing the results if 250,000 units are produced. (b) Prepare a variable costing income statement, with one column showing the results if 200,000 units are produced and one column showing the results if 250,000 units produced. (c) Reconcile the differences in net incomes under the two approaches and explain what accounts for this difference (d) Discuce the relative usefulnese of the variable costing Income statemente versue the absorption costing income statements for decision making and for evaluating the managere performance ELECTRICOIL DIVISION Income Statement For the Year Ended December 31, 2017 Absorption Costing (a) 200,000 Produced 250,000 Produced Sales (#units X $9) 1,800,000 1,800,000 Note that "SALES" remain the same Cost of goods sold in BOTH columns Gross profit The problem is Var selling & Admin trying to show the expenses difference "Ending Fxd selling & Admin Inventory" makes expenses between costing Net Income methods. ELECTRICOIL DIVISION Income Statement For the Year Ended December 31, 2017 Variable Costing (b) Sales 200,000 Produced 1,800,000 250,000 Produced 1,800,000 (units x $9) Contribution margin Net Income
