MEMOTEC, INC. Income Statement 1. Year 1 Year 2 Year 3 Unit Sales 50,000 40,000 50,000 Sales $ 1,000,000 $ 800,000 $ 1,000,000 Variable expenses: Variable cost of goods sold 200,000 160,000 200,000 Variable selling and administrative 100,000 80,000 100,000 Total variable expenses 300,000 240,000 300,000 Contribution margin 700,000 560,000 700,000 Fixed expenses: Fixed manufacturing overhead 600,000 600,000 600,000 Fixed selling and administrative 70,000 70,000 70,000 Total fixed expenses 670,000 670,000 670,000 Net operating income (loss) $ 30,000 $ (110,000) $ 30,000 Correct! Correct! Correct! 2a. MEMOTEC, INC. Computations Unit product cost: Year 1 Year 2 Year 3 Variable manufacturing cost $ 4 $ 4 $ 4 Fixed manufacturing cost 12 10 15 Absorption costing unit product cost $ 16 $ 14 $ 19 Correct! Correct! Correct 2b. Reconciliations: Variable costing net operating income (loss) $ 30,000 $ (110,000) $ 30,000 Add (Deduct): Fixed manufacturing overhead cost deferred in inventory from Year 2 to Year 3 under absorption costing 200,000 (200,000) Add: Fixed manufacturing overhead cost deferred in inventory from Year 3 to the future under absorption costing 150,000 Absorption costing net operating income (loss) $ 30,000 $ 90,000 $ 20,000) Correct! Correct! Correct!MEMOTEC, INC. Income Statement Year 1 Year 2 Year 3 Sales $ 1,000,000 $ 800,000 $ 1,000,000 Cost of goods sold 800,000 560,000 850,000 Gross margin 200,000 240,000 150,000 Selling and administrative costs 170,000 150,000 170,000 Net operating income (loss) $ 30,000 $ 90,000 $ (20,000) Production & sales: Year 1 Year 2 Year 3 Production in units 50,000 60,000 40,000 Sales in units 50,000 40,000 50,000 Year 2: Drop in sales 20% Expected sales (units) 50,000 Production set for expected sales and buffer (units) 60,000 Additional Information: Variable manufacturing overhead costs per unit 4 Fixed manufacturing overhead costs per year 600,000 Variable selling and administrative expenses per unit 2 Fixed selling and administrative expenses per year 70,0005b. Year 1 Year 2 Year 3 Unit Sales 50,000 40,000 50,000 Sales EA 1,000,000 $ 800,000 $ 1,000,000 Cost of goods sold: Cost of goods manufactured 200,000 160,000 200,000 Add underapplied overhead 600,000 600,000 600,000 Cost of goods sold: 800,000 560,000 850,000 Gross margin 200,000 240,000 150,000 Selling and administrative expenses 170,000 150,000 170,000 Net operating income (loss) $ 30,000 EA 90,000 $ (20,000) Correct! Try again! Try again