Instructions

Prepare an analysis showing whether the company should eliminate the line.

State how much money they will gain or lose if the line is eliminated.

Question $4(20$ marks$)$

ABC produces sporting equipment. Below are condensed results for the first two years of operation. ABC has a December $31$ year$-$end.

Year $1$:

$25,000$

Units Produced

$18,000$

Units Sold

Year $2,$ the results were exactly reversed:

$18,000$

Units Produced

$25,000$

Units Sold

Each year the following unit prices were the same:

$$100$

Selling Price

$$40$

Variable Manufacturing Costs

$$8$

Variable Selling Costs

$$540,000$

Fixed Manufacturing Costs

$$200,000$

Fixed Administrative Expenses

Instructions

Calculate net income under variable costing for each year.

Calculate net income under absorption costing for each year.

Reconcile the differences each year in income from operations under the two costing approaches.