It is only for Mr Akshya

Question 1. Hanson, Inc. makes 1,000 units per year of a part called a prositron for use in one of its products. Data concerning the unit production costs of the prositron follow.

Direct materials $342

Direct labor 80

Variable manufacturing OH 48

Fixed manufacturing OH 520

Total $990

An outside supplier has offered to sell Hanson, Inc. all of the prositrons it requires. If Hanson, Inc. decided to discontinue making the prositrons, 10% of the above fixed manufacturing overhead costs could be avoided.

Required: Assume Hanson, Inc. has no alternative use for the facilities presently devoted to production of the prositrons. If the outside supplier offers to sell the prositrons for $850 each, should Hanson, Inc. accept the offer? Fully support your answer with appropriate calculations.

Question 2. The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, XXXX. During the accounting period, 17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories.

Bernon Co.

Absorption Costing Income Statement

for the Month Ended May 31, XXXX

Sales (17,000 @ $60)

$1,020,000

Cost of goods sold

612,000

Gross profit

$ 408,000

Selling and administrative expenses

66,000

Income from operations

$ 342,000

Additional Information:

Cost

Total Cost

Number of Units

Unit Cost

Manufacturing costs:

Variable

$442,000

17,000

$26

Fixed

170,000

17,000

10

Total

$612,000

$36

Selling and administrative expenses:

Variable ($2 per unit sold)

$34,000

Fixed

32,000

Total

$66,000

Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.