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Problem 1 Carlos Romero has gone over the financial statements for Romero Parts, Inc. The income statement has been prepared on an absorption costing basis
Problem 1 Carlos Romero has gone over the financial statements for Romero Parts, Inc. The income statement has been prepared on an absorption costing basis and Romero would like to have the statement revised on a variable costing basis. The company has a normal production capacity of 1,200,000 units each year. Only one line of product is manufactured, and the inventory is accounted for on a FIFO basis. In 20X3, the fixed factory overhead was P6,000,000. During the year, Romero Parts, Inc. manufactured 1,100,000 units of product. 270 Chapter 10 Romero Parts, Inc. Income Statement - Manufacturing For the Year Ended December 31, 20X3 P20,700,000 P 1,980,000 13,200,000 Sales ....... Cost of goods sold: Inventory, first of year Current production Cost of production available for sale...... Less inventory, end of year. Gross margin .... Factory overhead capacity variance Income from manufacturing P15,180,000 1,380,000 13,800,000 P 6,900,000 500,000 P 6.400.000 For the current year 20X4, plans have been made to manufacture 1,400,000 units of product and to sell 1,450,000 units. The unit variable cost and the selling price are expected to be the same as they were last year. The normal capacity level will remain unchanged but fixed factory overhead can be reduced to P5,400,000 for the year. Required: 1. Recast the income statement for 20x3 to place it on a variable costing basis. (In your solution, show beginning inventory at variable cost.) 2. Prepare an estimated income statement for 20X4 on an absorption costing basis. 3. Prepare another estimated income statement for 20X4 on variable costing basis
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