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Mark Hancock Incorporated manufactures a specialized surgical instrument called the HAN-20. The firm has grown rapidly in recent years because of the product's low price

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Mark Hancock Incorporated manufactures a specialized surgical instrument called the HAN-20. The firm has grown rapidly in recent years because of the product's low price and high quality. However, sales have declined this year primarily due to increased competition and decrease in the surgical procedures for which the HAN-20 is used. The firm is concerned about the decline in sales and has hired a consultant to analyze the firm's profitability. The consultant was provided the following information: Top management at Hancock explained to the consultant that a difficult business environment for the firm in 2021 and 2022 had caused the firm to reduce its price and production levels and reduce its fixed manufacturing costs in response to the decline in sales Even with the price teduction, there was a decline in sales in both years. This led to an increase in inventory in 2021, which the firm was able to reduce in 2022 by further reducing the level of production. In both years, Hancock's actual production was less than the budgeted level so that the ovethead rate for fixed overhead, calculated from budgeted production levels, was too low. and a production volume variance was calculated to adjust cost of goods sold for the underapplled fixed overhead (the calculation of the production volume variance is explained fully in Chapter 15 and reviewed briefly below) The production volume varlance for 2021 was determined from the fixed overhead rate of $1/5 per unit ($1.015.000/5.800 budqeted units) Because the actual production level was 600 units short of the budgeted level in 2021(5,8005,200), the amount of the production volume variance in 2021 was 600$175=$105,000. The production volume varlance is underapplied because the actual production level is less than budgeted, and the production volume variance is therefore added back to cost of goods sold to determine the amount of cost of goods sold in the full costing income statement. The full costng income statement for 2021 is shown MARK HANCOCK, INCORPORATED Full Costing Income Statement MARK HANCOCK, INCORPORATED repare a reconciliation of the difference each year in the operating income resulting from the full- and variable-costing nethods. (Negative amounts should be indicated by aminus sign.) Mark Hancock Incorporated manufactures a specialized surgical instrument called the HAN-20. The firm has grown rapidly in recent years because of the product's low price and high quality. However, sales have declined this year primarily due to increased competition and decrease in the surgical procedures for which the HAN-20 is used. The firm is concerned about the decline in sales and has hired a consultant to analyze the firm's profitability. The consultant was provided the following information: Top management at Hancock explained to the consultant that a difficult business environment for the firm in 2021 and 2022 had caused the firm to reduce its price and production levels and reduce its fixed manufacturing costs in response to the decline in sales Even with the price teduction, there was a decline in sales in both years. This led to an increase in inventory in 2021, which the firm was able to reduce in 2022 by further reducing the level of production. In both years, Hancock's actual production was less than the budgeted level so that the ovethead rate for fixed overhead, calculated from budgeted production levels, was too low. and a production volume variance was calculated to adjust cost of goods sold for the underapplled fixed overhead (the calculation of the production volume variance is explained fully in Chapter 15 and reviewed briefly below) The production volume varlance for 2021 was determined from the fixed overhead rate of $1/5 per unit ($1.015.000/5.800 budqeted units) Because the actual production level was 600 units short of the budgeted level in 2021(5,8005,200), the amount of the production volume variance in 2021 was 600$175=$105,000. The production volume varlance is underapplied because the actual production level is less than budgeted, and the production volume variance is therefore added back to cost of goods sold to determine the amount of cost of goods sold in the full costing income statement. The full costng income statement for 2021 is shown MARK HANCOCK, INCORPORATED Full Costing Income Statement MARK HANCOCK, INCORPORATED repare a reconciliation of the difference each year in the operating income resulting from the full- and variable-costing nethods. (Negative amounts should be indicated by aminus sign.)

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