Question
Income Statements and Firm Performance: Variable and Absorption Costing Jellison Company had the following operating data for its first two years of operations: Variable costs
Income Statements and Firm Performance: Variable and Absorption Costing
Jellison Company had the following operating data for its first two years of operations:
Variable costs per unit: | |||
Direct materials | 4.00 | ||
Direct labor | $2.80 | ||
Variable overhead | 1.40 | ||
Fixed costs per year: | |||
Overhead | 180,000 | ||
Selling and administrative | 70,200 |
Jellison produced 90,000 units in the first year and sold 80,000. In the second year, it produced 80,000 units and sold 90,000 units. The selling price per unit each year was $12. Jellison uses an actual costing system for product costing.
Required:
1. Prepare income statements for both years using absorption costing. If an amount is zero, enter "0".
Jellison Company | ||
Absorption-Costing Income Statement | ||
For Years 1 and 2 | ||
Year 1 | Year 2 | |
Sales | $ | $ |
Less: Cost of goods sold | ||
Gross profit | $ | $ |
Less: Fixed selling and administrative expenses | ||
Operating income | $ | $ |
Cost of goods sold: | ||
Beginning inventory | $ | $ |
Cost of goods manufactured | ||
Goods available for sale | $ | $ |
Less: Ending inventory | ||
Cost of goods sold | $ | $ |
Has firm performance, as measured by income, improved or declined from Year 1 to Year 2? Improved
2. Prepare income statements for both years using variable costing. If an amount is zero, enter "0".
Jellison Company | ||
Variable-Costing Income Statement | ||
For Years 1 and 2 | ||
Year 1 | Year 2 | |
Sales | $ | $ |
Less: Variable cost of goods sold | ||
Contribution margin | $ | $ |
Less: | ||
Fixed overhead | ||
Fixed selling and administrative expenses | ||
Operating income | $ | $ |
Variable cost of goods sold: | ||
Beginning inventory | $ | $ |
Variable cost of goods manufactured | ||
Goods available for sale | $ | $ |
Less: Ending inventory | ||
Cost of goods sold | $ | $ |
Has firm performance, as measured by income, improved or declined from Year 1 to Year 2? Improved
3. Which method do you think most accurately measures firm performance? Variable Costing
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