It is the end of 2017. Thurgood All - Fixed Corporation began operations in January 2016. All its costs are fixed; they do not vary with output. Thurgood All - Fixed Corp. is located on the bank of a river and has its own hydroelectric plant to supply power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by pressing a few buttons on a keyboard. The following budgeted and actual data are for the operations of Thurgood All - Fixed (Click the icon to view the budgeted and actual data.) The company uses budgeted production as the denominator level and writes off any production-volume variance to cost of goods sold. 2016 2017 (a) Sales 30,000 tons 30,000 tons Production 60,000 tons 0 tons Selling price $ 125 per ton $ 125 per ton Costs (all fixed): Manufacturing $ 3,180,000 $ 3,180,000 Operating (non-manufacturing) $ 105,000 $ 105,000 (a) Management adopted the policy, effective January 1, 2017, of producing only as much product as needed to fill sales orders. During 2017, sales were the same as for 2016 and were filled entirely from inventory at the start of 2017. Requirement 1. Prepare income statements with one column for 2016, one column for 2017, and one column for the two years together using (a) variable costing and (b) absorption costing. (Use parentheses or a minus sign for an operating loss.) Start by preparing the (a) variable costing income statement for 2016, 2017, and the two year total. 2016 2017 Total Revenue 3750000 3750000 7500000 Fixed costs 3,180,000 6360000 Manufacturing costs Operating costs Total fixed costs 3,180,000 105,000 105,000 210000 32850001 3285000 6825000 6570000 13650000 6825000 Operating income (loss) Now prepare the (b) absorption costing income statement for 2016, 2017, and the two year total. (Enter a "0" for any $0 balances. Use parentheses or a minus sign for an operating loss. Label each variance as favourable (F) or unfavourable (U). Use units of production as the denominator level in the allocation rate.) 2017 Total 2016 3750000 Revenue 3750000 7500000 0 Cost of goods sold Beginning inventory Allocated fixed manufacturing costs Deduct ending inventory Adjustment for production-volume variance Total cost of goods sold Gross margin Operating costs Operating income (loss) Requirement 2. What is the breakeven point under (a) variable costing and (b) absorption costing? Start by calculating the breakeven point under (a) variable costing. (Round your answer up to the nearest unit.) Breakeven point under variable costing = Now calculate the breakeven point under (b) absorption costing. Enter the formula labels and amounts needed to calculate the absorption costing breakeven sales. (Assume "P" is the production level in units. Abbreviations used: MOH = manufacturing overhead, CM = contribution margin.) +[ x Revenue )]= ))= +1 X The breakeven point under absorption costing when sales are tons is units. Requirement 3. What inventory costs would be carried in the balance sheet on December 31, 2016, and 2017, under each method? (For accounts with a $0 balance, enter a $0 in the appropriate cell.) December 31, 2016 December 31, 2017 Variable costing Absorption costing (non-manufacturing)
