Emerson Corporation just completed its first year of operations. Planned and actual production equaled 12,000 units, and sales totaled 10,800 units at $163 per unit.
Emerson Corporation just completed its first year of operations. Planned and actual production equaled 12,000 units, and sales totaled 10,800 units at $163 per unit. Cost data for the year are as follows: Direct material (per unit) $ 33 Conversion cost: Direct labor 588,888 Variable manufacturing overhead 492,888 Fixed manufacturing overhead 588,888 Selling and administrative costs: Variable (per unit) 35 Fixed 355,988 Compute the company's total cost for the year assuming that variable manufacturing costs are driven by the number of units produced, and variable selling and administrative costs are driven by the number of units sold. Total costHow much of this cost would be held in year-end inventory under (a) absorption costing and (b) variable costing? Cost of Year-End Inventory Absorption costing Variable costingHow much of the company's total cost for the year would be included as an expense on the period's income statement under (a) absorption costing and (b) variable costing? Expense Absorption costing Variable costingChataqua Can Company manufactures metal cans used in the foodprocessing industry. A case of cans sells for $30. The variable costs of production for one case of cans are as follows: Direct material 3'; 3.68 Direct labor 3.68 Variable manufacturing overhead ?-59 Total variable manufacturing cost per case $13-59 Variable selling and administrative costs amount to_$0.80 per case. Budgeted xed manufacturing overhead is $462,000 per year, and fixed selling and administrative cost is $39,000 per year. The following data pertain to the company's rst three years of operation. Year 1 Year 2 Year 3 Planned production (in units) TLBBB ??J888 ??,808 Finishedgoods inventory (in units], January 1 8 8 21,566 Actual production (in units] 31,868 7'75888 ??,8E'8 Sales (in units) 7558-88 55,588 3?,T58 Finishedgoods inventory (in units], December 31 '8 21J588 18,?58 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. b. Variable costing. Z Reconcile Chataqua Can Company's 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 Chataqua's 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. a. What will be the difference between absorption-costing income and variable-costing income in year 4? b. What will be the relationship between total operating income for the fouryear period as reported under absorption and variable costing? Prepare operating income statements for Chataqua Can Company for its first three years of operations using absorption costing. Year 1 Year 2 Year 3 Sales revenue Less: Cost of goods sold Gross margin 0 $ 0 0 Selling and Administrative Expenses Fixed selling and administrative Variable selling and administrative Operating income $ 0 0Prepare operating income statements for Chataqua Can Company for its first three years of operations using variable costing. Year 1 Year 2 Year 3 Sales revenue Variable expenses: Variable manufacturing costs Variable selling and administrative Contribution margin 69 0 0 $ 0 Fixed expenses: Fixed selling and administrative Fixed manufacturing overhead Operating income 69 0 0 $ 0Reconcile Chataqua Can Company's operating income reported under absorption and variable costing for each of its first three years of operation. Use the shortcut method. Year Difference in fixed Change in inventory x Predetermined fixed = overhead expensed (in units) overhead rate under absorption and variable costing 2 3Suppose that during Chataqua's 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. What will he the difference between absorptioncosting income and variable-costing income in year 4
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