Instructions: Answer the following Questions & Show your complete solution. No solution considered wrong.

Module: VARIABLE COSTING AND ABSORPTION COSTING

QUESTION:

Questions 20 through 23 are based on the following information. The annual flexible budget below was prepared for use in making decisions relations to Product X. 100,000 units 150,000 units 200,000 units Sales volume $ 800,000 $1.200,000 $1,600,000 Manufacturing costs: Variable $300,000 $450,000 $600,000 Fixed 200,000 200,000 200,000 $500,000 $650,000 $800,000 Selling & other expenses Variable $200,000 $300,000 $400,000 Fixed 160,000 160,000 160,000 $360,000 $460,000 $560,000 Income (or loss) $(60,000) $90000 $240,000 The 200,000 unit budget has been adopted and will be used for allocating fixed manufacturing costs to units of Product X. At the end of the first 6 months, the following information is available: Units Production completed 120,000 Sales 60,000 All fixed costs are budgeted and incurred uniformly throughout the year, and all costs incurred coincide with the budget. Over- and under-applied fixed manufacturing costs are deferred until year-end. Annual sales have the following seasonal pattern. Portion of Annual Sales First quarter 10% Second quarter 20% Third quarter 30% Fourth quarter 40%20. The amount of fixed factory costs applied to product during the first 6 months under absorption costing is A. Over-applied by $20,000. C. Under-applied by $40,000. B. Equal to the fixed costs incurred. D. Under-applied by $80,000. 21. Reported net income (or loss) for the first 6 months under absorption costing is A. $160,000 B. $0 C. $40,000 D. $(40,000) 22. Reported net income (or loss) for the first 6 months under variable costing is A. $180,000 B. $40,000 C. $0 D. $(180,000) 23. Assuming that 90,000 units of Product X were sold during the first 6 months and that this is to be used as a basis, the revised budget estimate for the total number of units to be sold during this year is A. 360,000 B. 240,000 C. 200,000 D. None of the above