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?
(b) What is the net operating income (loss) in Year 2 under absorption costing?
(c) What is the net operating income (loss) in Year 1 under variable costing?
(d) What is the net operating income (loss) in Year 2 under variable costing?
(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.unanswered
3.
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 $170,000 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 5,400 units.
(a) Would this change result in a bonus being paid to the CEO?
multiple choice 1
(b) What is the net operating income (loss) in Year 2 under absorption costing?
(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 2,800 units per year?
multiple choice 2
6 Variable per unit produced 7 Direct materials $119 8 Direct labor $82 9 Variable manufacturing overhead $23 10 Fixed manufacturing overhead per your $172,800 11 Selling and administrative expenses 12 Variable per un sold $7 13 Fixed per year $91,000 14 15 Year 1 Year 2 16 Units in beginning inventory 0 17 Units produced during the year 3.200 2,700 18 Units sold during the year 2,800 2.800 19 20 Enter a formula into each of the calls marked with a ? below 21 Review Probler 1: Contrasting Variable and Absorption Costing 22 23 Compute the Ending Inventory 24 Year 1 Year 2 25 Units in beginning inventory 0 0 26 Units produced during the year 3,200 2,700 27 Units sold during the year 2.800 2,800 28 Unitsin ending inventory 400 (100) 29 30 Compute the Absorption Costing Unit Product Cost 31 Year 1 Year 2 32 Direct materials $119 $119 33 Direct labor 62 34 Variable manufacturing overhead 23 23 35 Fixed manufacturing overhead 54 64 36 Absorpliancesing unit product cos! $258 $269 37 38 Construct the Absorption Costing Income Statement 39 Year 1 Year 2 40 Sales $ 946,400 $ 946,400 41 Cost of goods sold 722,400 723,600 42 Gross margin 224,000 222.800 43 Selling and administrative expenses 110.000 44 Net operating income 5 113,400 $ 112.200 45 46 Compute the Variable Costing Unit Product Cost 47 Year 1 Year 2 48 Direct materials $119 $119 49 Direct labor 62 50 Variable manufacturing overhead 23 23 51 Variable costing unit product cos! $204 $204 52 53 Construct the Variable Costing Income Statement 54 Year 1 55 Sales $ 946,400 56 Variable expenses 57 Variable cost of goods sold $ 571,200 58 Variable selling and administrative expenses 19,600 590,000 59 Contribution margin 355,600 60 Fixed expenses: 61 Fixed manufacturing overhead $172,800 62 Fixed selling and administrative expenses $91,000 $263,800 63 Net operating income 5 91,800 110.000 Year 2 $ 946,400 $571,200 19,800 $590,800 355,600 $172,800 $91,000 $ $283,800 91.800 6 Variable per unit produced 7 Direct materials $119 8 Direct labor $82 9 Variable manufacturing overhead $23 10 Fixed manufacturing overhead per your $172,800 11 Selling and administrative expenses 12 Variable per un sold $7 13 Fixed per year $91,000 14 15 Year 1 Year 2 16 Units in beginning inventory 0 17 Units produced during the year 3.200 2,700 18 Units sold during the year 2,800 2.800 19 20 Enter a formula into each of the calls marked with a ? below 21 Review Probler 1: Contrasting Variable and Absorption Costing 22 23 Compute the Ending Inventory 24 Year 1 Year 2 25 Units in beginning inventory 0 0 26 Units produced during the year 3,200 2,700 27 Units sold during the year 2.800 2,800 28 Unitsin ending inventory 400 (100) 29 30 Compute the Absorption Costing Unit Product Cost 31 Year 1 Year 2 32 Direct materials $119 $119 33 Direct labor 62 34 Variable manufacturing overhead 23 23 35 Fixed manufacturing overhead 54 64 36 Absorpliancesing unit product cos! $258 $269 37 38 Construct the Absorption Costing Income Statement 39 Year 1 Year 2 40 Sales $ 946,400 $ 946,400 41 Cost of goods sold 722,400 723,600 42 Gross margin 224,000 222.800 43 Selling and administrative expenses 110.000 44 Net operating income 5 113,400 $ 112.200 45 46 Compute the Variable Costing Unit Product Cost 47 Year 1 Year 2 48 Direct materials $119 $119 49 Direct labor 62 50 Variable manufacturing overhead 23 23 51 Variable costing unit product cos! $204 $204 52 53 Construct the Variable Costing Income Statement 54 Year 1 55 Sales $ 946,400 56 Variable expenses 57 Variable cost of goods sold $ 571,200 58 Variable selling and administrative expenses 19,600 590,000 59 Contribution margin 355,600 60 Fixed expenses: 61 Fixed manufacturing overhead $172,800 62 Fixed selling and administrative expenses $91,000 $263,800 63 Net operating income 5 91,800 110.000 Year 2 $ 946,400 $571,200 19,800 $590,800 355,600 $172,800 $91,000 $ $283,800 91.800
