Help with question 1.

2 and 3 as well if possible

Mastery Problem: Variable Costing for Management Analysis Absorption vs. Variable Doering income is one of the most important es reparted by a company. Depending on the decision-making needs of management, operating income can be determined using absoration costing or variable costing. Select whether the folowing characteristics are most often associated with absorption costing or variable casting Absorption Costing Required under generally accepted accounting principles (GAAP) often used for internal use in decision making Variable Costing Cast of goods manufactured includes only variable manufacturing costs Variable Costing Used in reparts prepared for external users Absorption Costing Fixed factory overhead costs are not part of cost of goods manufactured Variable Costing Both fixed and variable factory costs are included in coat af gands sold and Inventory Absorption Costing Fouch Check My Raview the differences between ansciption and variable casting, and how each type of costing is used in the organization and for management processes. Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,360,000 Cast of goods sold: Cast of goods manufactured Ending inventory 840,000 (175,000) Total cost of goods sold Gross profit Selling and edministrative expenses (714,000) $646,000 (320,000) Operating income $325,000 Variable Statement Under variable coating, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin. Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 Sales $1,36D),OUT Variable cost of goods sold: Vanaale cost of goods manufactured $600,000 Ending inventory (90,000) Total variable east of goods sold (510,000) Manufacturing margin $350,000 Variable selling and administrative expenses (255,100) Contribution margin $595,00 Fixed costs: Fixed manufacturing casts $249,0CD 65,000 Fixed selling and administrative expenses Total fixed costs (305,000) $290,000 Operating income Method Comparison Review the income statements on the Auswption Stalenterit and Variable Statenent, then complete the following table. The company's sales price per unit is $80, and the number of units in ending inventory is 3,000. There was no beginning inventory. Item Amount Number of units sold 17,000 Variable sales and administrative sast per unit 15 Number of units manufactured 20,000 Variable cost of goods manufactured per unit 30 Fixed manufacturing cost per unit 12 Manufacturing Decisions Wherever the units manufactured differ from the units sold, finished gands Inventory is affected. In analyzing operating income, such Increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption er variable costing reporting would mare useful. All costs are controllable in the long run hy samcone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, he notices that the operating income is higher on the absorption cost Income statement. He is considering manufacturing another 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisty the company's owner that the company is sufficiently praf table. Although the total units manufactured changes, assume that totel fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(2) that follon. If the answer is zero, enter 'O'. 1. Use the income statements on the Absorption Statement and Variable Statement to complete the following tale for the ariginal production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that tetel fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels Operating Income Original Production Original Production Additional 10,000 Additional 10,000 Level-Absorption Level-Variable Unite-Absorption Units-Variable 2. What is the change in operating income from producing 10,000 additional units under absorption costing? 3. What is the change in operating Income from producing 10.000 additional units under vartahle casting? $ 4. What would be your recommendation to the production manager? 2. Do not produce the extra 10,000 units. The increase in operating income under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, sturege, financing, and obsolescence costs. b. Produce the extra 10,000 units. Operating Income will be increased, and the production manager will receive praise for creating higher protits. C. Do not produce the extra 10,000 units. Operating income does not change under absorption costing when the additional units are produced. d. Produce the extra 10,000 units. It's always a good idea to heve extra units on hand and keep the factory operating et capacity, even if all the units are not sold