It is the end of

2020.

Tessa AllFixed

Corporation began operations in January

2019.

The company is so named because it has no variable costs. All its costs are fixed; they do not vary with output.

Tessa AllFixed

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

Tessa AllFixed.

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Question content area bottom

Part 1

Requirement 1. Prepare income statements with one column for

2019,

one column for

2020,

and one column for the 2 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

2019,

2020,

and the 2 year total.

	2019
Revenue
Fixed costs:
Manufacturing costs
Operating costs
Total fixed costs
Operating income (loss)

2020

Total

Part 2

Now prepare the (b) absorption costing income statement for

2019,

2020,

and the 2 year total. (Enter a "0" for any $0 balances. Use parentheses or a minus sign for an operating loss. Label each variance as favorable (F) or unfavorable (U). Use units of production as the denominator level in the allocation rate.)

	2019
Revenue
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)

2020

Total

Part 3

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
			=

Part 4

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.)

	+ [		(		-		) ] =	Revenue
	+ [		(		-	P	) ] =

Part 5

(Round your answer up to the nearest unit.)

The breakeven point under absorption costing when sales are

tons is

units.

Part 6

Requirement 3. What inventory costs would be carried in the balance sheet on December 31,

2019

and

2020,

under each method? (For accounts with a $0 balance, enter a $0 in the appropriate cell.)

	December 31, 2019	December 31, 2020
Variable costing
Absorption costing (nonmanufacturing)

Part 7

Requirement 4. Assume that the performance of the top manager of the company is evaluated and rewarded largely on the basis of reported operating income. Which costing method would the manager prefer? Why?

Operating income is affected by both production and sales under

absorption costing.

variable costing.

Most managers would prefer

absorption

variable

costing because their performance in any given reporting period, at least in the short run, is influenced by

how much production is scheduled near the end of a period.

the fixed manufacturing costs required to produce the breakeven units.

the total year end inventory.

Data table Data table Requirements 1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. 2. Suppose GES actually produces 250,000 bulbs. Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate. 3. Assume GES has no beginning inventory. If this year's actual sales are 212,500 bulbs (and production is 250,000 bulbs), calculate operating income for GES using each type of capacity to compute fixed manufacturing cost per unit. Data table Data table Requirements 1. Calculate the inventoriable cost per unit using each level of capacity to compute fixed manufacturing cost per unit. 2. Suppose GES actually produces 250,000 bulbs. Calculate the production-volume variance using each level of capacity to compute the fixed manufacturing overhead allocation rate. 3. Assume GES has no beginning inventory. If this year's actual sales are 212,500 bulbs (and production is 250,000 bulbs), calculate operating income for GES using each type of capacity to compute fixed manufacturing cost per unit