G H A 1 Absorption Costing Versus Variable Costing 2 Wall Tech Company produces wood siding company has no finished goods inventory at the beginning of year 1. The following information pertains to Wall Tech Company: 3 4 Annual Production 200,000 5 Sales Price, per unit 30 6 Variable Production 7 Direct Materials 8 8 Direct Labor 3 Variable Product 9 Variable Overhed 4 10 Fixed Overhead 1,000,000 Absorption Product 11 FOH per unit 5 12 Variable S&A, per unit 2 13 Fixed S&A 800,000 15 Required: 16 1 All 200,000 units produced during year 1 are sold during year 1. 17 Prepare a traditional income statement assuming the company uses absorption costing 18 Prepare a contribution margin income statement assuming the company uses variable costing 2 Although 200,000 units are produced during year 2, only 170,000 units are sold during the year. The 19 remaining 30,000 units are in finished goods inventory at the end of year 2. 20 Prepare a traditional income statement assuming the company uses absorption costing 21 Prepare a contribution margin income statement assuming the company uses variable costing 3 Although 200,000 units are produced during year 3, a total of 230,000 units are sold during the year. The 30,000 units remaining in inventory at the end of year 2 are sold during year 3. Prepare a traditional income statement assuming the company uses absorption costing 24 Prepare a contribution margin income statement assuming the company uses variable costing 25 4 Analyze the results in years 1 through 3 26 27 28 29 30 31 32 8,000,000 Year 1 Sold Units 200,000 Absorption Method Sales 6000 000 COGS 4.000.000 Gross Margin 2,000,000 Selling and Admin 1.200 000 Operating Profit B00 000 Variable Method Sales Variable Costs Product 3,000,000 Selling and Admin 400,000 Contribution Margin Year 2 Sold Units 170 000 Absorption Method Sales 5 100,000 COGS 8 400 000 Gross Margin 1,700,000 Selling and Admin 1,140,000 Operating Profit 560,000 Sales Variable costs Product Selling and Admi Contribution Margi 33 34 3,400,000 2800,000 35 Prepare a contribution margin income statement assuming the company uses variable costing 3 Although 200,000 units are produced during year 3, a total of 230,000 units are sold during the year. The 30,000 units remaining in inventory at the end of year 2 are sold during year 3. Prepare a traditional income statement assuming the company uses absorption costing Prepare a contribution margin income statement assuming the company uses variable costing 4 Analyze the results in years 1 through 3 6,000,000 Sa Year 1 Sold Units 200,000 Absorption Method Sales 6,000,000 COGS 4,000,000 Gross Margin 2,000,000 Selling and Admin 1,200,000 Operating Profit 800,000 Year 2 Sold Units 170,000 Absorption Method Sales 5,100,000 COGS 3,400,000 Gross Margin 1,700,000 Selling and Admin 1,140,000 Operating Profit 560.000 Variable Method Sales Variable Costs Product 3,000,000 Selling and Admin 400,000 Contribution Margin Fixed Costs Fixed Overhead 1,000,000 Selling and Admin 800,000 Operating Income P 3,400.000 2.600.000 FD 1,800,000 B00,000 Absorption less Variable Absorption less Variable Difference is the amount in Ending inventory Produced Sold Cost defered (released) inventory FOH, per unit Cost defered (released) inventory Difference is the amount in Ending inventory Produced Sold Cost defered (released) inventory FOH, per unit Cost defered released) inventory 6.27 28 29 6.30 31 6.33 6.35 6.36 37 6.57 Extra Credit ady Accessibility: Investigate Tubare toenarch HI Year 2 Sold Units 170,000 Absorption Method Sales 5,100,000 COGS 3,400,000 Gross Margin 1,700,000 Selling and Admin 1,140,000 Operating Profit 560,000 5. 100 000 Variable Method Sales Variable Costs Product 2,550,000 Selling and Admin 340,000 Contribution Margin Fixed Costs Fixed Overhead 1,000,000 Selling and Admin 800,000 Operating Income Year 3 Sold Units Absorption Method Sales COGS Gross Margin Selling and Admin Operating Profit 2,890,000 2 210,000 Variable Method Sales Variable Costs Product Selling and Admin Contribution Margin Fixed Costs Fixed Overhead Selling and Admin Operating Income Absorption less Variable 1.800.000 410,000 Absorption less Variable 1,800,000 1190,000 Difference is the amount in Ending inventory Produced Sold Cost de fered (released) inventory FOH, per unit Cost defered (released) inventory Difference is the amount in Ending inventory Produced Sold Cost defered (released) inventory FOH, per unit Cost defered released inventory a Credit 3 La Display Settings 800,000 Absorption less Variable Selling and Admin Operating Income 1,800,000 800,000 Fixed Overhead Selling and Admin Operating Income 1,000,000 800,000 Fixer Face Sel Ope 1,800,000 410,000 Absorption less Variable Absorption less Variable Difference is the amount in Ending inventory Produced Sold Cost defered (released) inventory FOH, per unit Cost defered (released) inventory Difference is the amount in Ending inventory Produced Sold Cost defered (released) inventory FOH, per unit Cost defered released) inventory Difference is the amount in Ending inventory Produced Sold Cost defered (released) inventory FOH, per unit Cost defered (released) inventory Profit over 3 Years Absorption Variable Year 1 Year 2 Year 3 Total