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Manufacturing Decisions Shaded cells have feedback. Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing income from operations,
Manufacturing Decisions Shaded cells have feedback. Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing income from operations, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is womied because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement panel and the Variable Statement panel, he notices that the income from operations is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost income from operations and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter"0" 1. Use the income statements on the Absorption Statement and Variable Statement panels to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels. Original Production Level-Absorption Income From Operations Original Additional Production 10,000 Level-Variable Units-Absorption Additional 10,000 Units-Variable Points: 0/4 Feedback Saxon, Inc Absorption Costing Income Statement For the Year Ended December 31 1 Sales $1,200,000.00 Cost of goods sold: Beginning inventory Cost of goods manufactured $0.00 800,000.00 Ending inventory (200,000.00) Total cost of goods sold Gross profit 600,000.00 $600,000.00 275,000.00 Selling and administrative expenses Income from operations $325,000.00 Saxon, Inc. Contribution Margin Data Schedule Actual Planned Sales $1,200,000 $1,190,000 Variable cost of goods sold $420,000 $462,000 Variable selling and administrative expenses 210,000 154.000 Total $830,000 $818,000 Contribution margin $570,000 $574,000 Number of units sold 15.000 14,000 Per unit: Sales price $80.00 $85.00 Variable cost of goods sold 28.00 33.00 Variable selling and administrative expenses 14.00 11.00 Method Comparison Shaded cells have feedback Review the income statements on the Absorption Statement and Variable Statement panels, then complete the following table. The company's sales price per unit is $80.00, and the number of units in ending inventory is 5,000. Item Amount Number of units sold Variable sales and administrative cost per unit Number of units manufactured Variable cost of goods manufactured per unit Fixed manufacturing cost per unit Points: 0/5 Feedback Contribution Margin Analysis Score: 8/44 Saxon, Inc Contribution Margin Analysis For the Year Ended December 31 Planned contribution margin $574,000.00 Effect of changes in sales: Sales quantity factor $170,000.00 (160,000.00) Unit price factor Total effect of changes in sales 10,000.00 Effect of changes in variable cost of goods sold: Variable cost quantity factor Unit cost factor Total effect of changes in variable cost of goods sold 10 Effect of changes in selling and administrative expenses: 11 Variable cost quantity factor 12 Unit cost factor 80,000.00 Total effect of changes in selling and administrative expenses (86,000.00) 14 Actual contribution margin $12,000.00 Manufacturing Decisions Shaded cells have feedback. Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing income from operations, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful. All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is womied because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement panel and the Variable Statement panel, he notices that the income from operations is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost income from operations and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter"0" 1. Use the income statements on the Absorption Statement and Variable Statement panels to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels. Original Production Level-Absorption Income From Operations Original Additional Production 10,000 Level-Variable Units-Absorption Additional 10,000 Units-Variable Points: 0/4 Feedback Saxon, Inc Absorption Costing Income Statement For the Year Ended December 31 1 Sales $1,200,000.00 Cost of goods sold: Beginning inventory Cost of goods manufactured $0.00 800,000.00 Ending inventory (200,000.00) Total cost of goods sold Gross profit 600,000.00 $600,000.00 275,000.00 Selling and administrative expenses Income from operations $325,000.00 Saxon, Inc. Contribution Margin Data Schedule Actual Planned Sales $1,200,000 $1,190,000 Variable cost of goods sold $420,000 $462,000 Variable selling and administrative expenses 210,000 154.000 Total $830,000 $818,000 Contribution margin $570,000 $574,000 Number of units sold 15.000 14,000 Per unit: Sales price $80.00 $85.00 Variable cost of goods sold 28.00 33.00 Variable selling and administrative expenses 14.00 11.00 Method Comparison Shaded cells have feedback Review the income statements on the Absorption Statement and Variable Statement panels, then complete the following table. The company's sales price per unit is $80.00, and the number of units in ending inventory is 5,000. Item Amount Number of units sold Variable sales and administrative cost per unit Number of units manufactured Variable cost of goods manufactured per unit Fixed manufacturing cost per unit Points: 0/5 Feedback Contribution Margin Analysis Score: 8/44 Saxon, Inc Contribution Margin Analysis For the Year Ended December 31 Planned contribution margin $574,000.00 Effect of changes in sales: Sales quantity factor $170,000.00 (160,000.00) Unit price factor Total effect of changes in sales 10,000.00 Effect of changes in variable cost of goods sold: Variable cost quantity factor Unit cost factor Total effect of changes in variable cost of goods sold 10 Effect of changes in selling and administrative expenses: 11 Variable cost quantity factor 12 Unit cost factor 80,000.00 Total effect of changes in selling and administrative expenses (86,000.00) 14 Actual contribution margin $12,000.00
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