Question
Nancy Jackson, CEO of Blossom Industries, is concerned about the recent volatility in the companys operating income. She believes that since the number of units
Nancy Jackson, CEO of Blossom Industries, is concerned about the recent volatility in the companys operating income. She believes that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable. Nancy asked Daniel White, Blossom's inventory manager, to help her understand the issue. Daniel reviewed the companys records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019, 2020, and 2021.
Year | |||||||||
---|---|---|---|---|---|---|---|---|---|
2019 | 2020 | 2021 | |||||||
Beginning inventory | 1,000 | 2,000 | 500 | ||||||
Production | 40,000 | 38,000 | 40,000 | ||||||
Sales | (39,000) | (39,500) | (39,500) | ||||||
Ending inventory | 2,000 | 500 | 1,000 |
Daniel also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow.
Income StatementAbsorption Costing | ||||
Sales | $ | 5,070,000 | ||
Cost of goods sold | ||||
Units in beginning inventory | (94,000) | |||
Units sold from current year production | (3,572,000) | |||
Total cost of goods sold | (3,666,000) | |||
Gross margin | 1,404,000 | |||
Selling expense | (630,000) | |||
Operating Income | $ | 774,000 | ||
Income StatementVariable Costing | ||||
Sales | $ | 5,070,000 | ||
Variable production expenses | (2,184,000) | |||
Variable selling expenses | (195,000) | |||
Contribution margin | 2,691,000 | |||
Fixed manufacturing expenses | (1,520,000) | |||
Fixed selling expenses | (435,000) | |||
Operating income | $ | 736,000 |
Your answer is correct. Compute the unit product cost for 2019, 2020 and 2021 for variable and absorption costing. Assume that variable costs per unit and total fixed costs do not change from one year to the next. (Round answers to 2 decimal places, eg, 15.25.) 2019 2020 2021 Unit product cost using variable costing $ 56 56 5 56 Unit product cost using absorption costing $ 94 $ 96 94 Textbook and Media Attempts: unlimited (b) Prepare variable and absorption costing income statements for 2020 and 2021 Assume that sales price remains constant across all years. (Round answers to decimal places, eg. 5,275.) Income Statement-Absorption Costing 2020 2021 Attempts: unlimited (b) Prepare variable and absorption costing income statements for 2020 and 2021 Assume that sales price remains constant across all years. (Round answers to O decimal places, eg. 5,275.) Income Statement-Absorption Costing 2020 2021 $ $ Income Statement-Variable Costing 2020 2021 Income Statement-Variable Costing 2020 2021 e Textbook and Media Attempts: unlimited Submit Answer Save for Later (c) der This part will be available when you complete the part above
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