Manufacturing Decisions 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 docision-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 worried 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 fotal fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Completo 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 prico, and the sales levels are the same at both production levels. Additional Original Production Income From Operations Original Additional Production 10.000 10.000 NAV Original Production Level-Absorption Income From Operations Original Additional Production 10,000 Level-Variable Units-Absorption Additional 10,000 Units-Variable Points: 074 Feedback v Check My Work Following the examples on the Absorption Statement and Variable Statement panels, recompute income from operations under the absorption and variable cost methods, given that the additional units are manufactured. Don't forget that fixed costs will remain the same at any production level within the relevant range, 2. What is the change in income from operations from producing 10,000 additional units under absorption costing? Points: 071 3. What is the change in income from operations from producing 10.000 additional units under variable costing? Points: 0/1 Feedback Check My Work Review your chart and determine the change in income from operations, focusing only on the change in variable costing amounts 4. What would be your recommendation to the production manager? Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold. Do not produce the extra 10,000 units. Income from operations does not change under absorption costing when the additional units are produced Do not produce the extra 10,000 units. The increase in income from operations under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs Produce the extra 10,000 units. Income from operations will be increased, and the production manager will receive praise Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 $1,125,000.00 1 Sales $0.00 800,000.00 2 Cost of goods sold Beginning inventory Cost of goods manufactured Ending inventory Total cost of goods sold 4 (200,000.00) 5 600,000.00 6 $525,000.00 260,000.00 7. Gross profit 8 Selling and administrative expenses 9 Income from operations $265,000.00 Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 $1,125,000.00 1 Sales $0.00 3 560,000.00 4 (140,000.00) 5 2 Variable cost of goods sold: Beginning inventory Variable cost of goods manufactured Ending inventory Total variable cost of goods sold 7 Manufacturing margin 8 Variable selling and administrative expenses 9 Contribution margin 6 420,000.00 $705,000.00 195,000.00 $510,000.00 10 Fixed costs: $240,000.00 11 Fixed manufacturing costs Fixed selling and administrative expenses 65,000.00 12 305,000.00 13 Total fixed costs $205,000.00 14 Income from operations Manufacturing Decisions 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 docision-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 worried 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 fotal fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Completo 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 prico, and the sales levels are the same at both production levels. Additional Original Production Income From Operations Original Additional Production 10.000 10.000 NAV Original Production Level-Absorption Income From Operations Original Additional Production 10,000 Level-Variable Units-Absorption Additional 10,000 Units-Variable Points: 074 Feedback v Check My Work Following the examples on the Absorption Statement and Variable Statement panels, recompute income from operations under the absorption and variable cost methods, given that the additional units are manufactured. Don't forget that fixed costs will remain the same at any production level within the relevant range, 2. What is the change in income from operations from producing 10,000 additional units under absorption costing? Points: 071 3. What is the change in income from operations from producing 10.000 additional units under variable costing? Points: 0/1 Feedback Check My Work Review your chart and determine the change in income from operations, focusing only on the change in variable costing amounts 4. What would be your recommendation to the production manager? Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold. Do not produce the extra 10,000 units. Income from operations does not change under absorption costing when the additional units are produced Do not produce the extra 10,000 units. The increase in income from operations under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs Produce the extra 10,000 units. Income from operations will be increased, and the production manager will receive praise Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 $1,125,000.00 1 Sales $0.00 800,000.00 2 Cost of goods sold Beginning inventory Cost of goods manufactured Ending inventory Total cost of goods sold 4 (200,000.00) 5 600,000.00 6 $525,000.00 260,000.00 7. Gross profit 8 Selling and administrative expenses 9 Income from operations $265,000.00 Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 $1,125,000.00 1 Sales $0.00 3 560,000.00 4 (140,000.00) 5 2 Variable cost of goods sold: Beginning inventory Variable cost of goods manufactured Ending inventory Total variable cost of goods sold 7 Manufacturing margin 8 Variable selling and administrative expenses 9 Contribution margin 6 420,000.00 $705,000.00 195,000.00 $510,000.00 10 Fixed costs: $240,000.00 11 Fixed manufacturing costs Fixed selling and administrative expenses 65,000.00 12 305,000.00 13 Total fixed costs $205,000.00 14 Income from operations