Problem 11-25A (Algo) Absorption and variable costing LO 11-4 Stuart Manufacturing pays its production managers a bonus based on the company's profitability. During the two most recent years, the company maintained the same cost structure to manufacture its products. Units Produced Units Sold 4,000 6,000 4,000 4,000 Year Production and Sales Year 2 Year 3 Cost Data Direct materials Direct labor Manufacturing overhead-variable Manufacturing overhead-fixed Variable selling and administrative expenses Fixed selling and administrative expenses $ 13.30 per unit $ 22.30 per unit $ 10.90 per unit $103, 200 $ 8.90 per unit sold $ 56,000 (Assume that selling and administrative expenses are associated with goods sold.) Stuart sells its products for $109.10 per unit. Required a. Prepare income statements based on absorption costing for Year 2 and Year 3. b. Since Stuart sold the same number of units in Year 2 and Year 3, why did net income increase in Year 3? d. Determine the costs of ending inventory for Year 3. e. Prepare income statements based on variable costing for Year 2 and Year 3. Complete this question by entering your answers in the tabs below. Req A Year 2 Req A Year 3 Req B Re D Req E Year 2 Reg E Year 3 Prepare income statements based on absorption costing for Year 2. (Do not round intermediate calculations.) STUART MANUFACTURING Absorption Costing Income Statement For the Year Ended Dec. 31, Year 2 Revenues Cost of Goods Sold: Direct materials Direct labor Manufacturing overhead 0 0 Gross margin Selling and administrative expenses Net income S 0 Complete this question by entering your answers in the tabs below. Req A Year 2 Req A Year 3 Req B Req D Req E Year 2 Reg E Year 3 Prepare income statements based on absorption costing for Year 3. (Do not round intermediate calculations.) STUART MANUFACTURING Absorption Costing Income Statement For the Year Ended Dec. 31, Year 3 Cost of Goods Sold: 0 0 $ 0 Required a. Prepare income statements based on absorption costing for Year 2 and Year 3. b. Since Stuart sold the same number of units in Year 2 and Year 3, why did net income increase in Year 3? d. Determine the costs of ending inventory for Year 3. e. Prepare income statements based on variable costing for Year 2 and Year 3. Complete this question by entering your answers in the tabs below. Req A Year 2 Req A Year 3 Req B Req D Req E Year 2 Req E Year 3 Since Levine sold the same number of units in Year 2 and Year 3, why did net income increase in Year 3? Why did net income increase in Year 3? Decrease in fixed manufacturing cost Complete this question by entering your answers in the tabs below. Req A Year 2 Req A Year 3 Req B Reg D Req Year 2 Req E Year 3 Determine the costs of ending inventory for Year 3. (Do not round intermediate calculations.) Ending inventory Complete this question by entering your answers in the tabs below. Reg A Year 2 Reg A Year 3 Req B Req D Reg E Year 2 Req E Year 3 Prepare income statements based on variable costing for Year 2. (Do not round intermediate calculations.) STUART MANUFACTURING Variable Costing Income Statement For the Year Ended Dec. 31, Year 2 Variable costs: 0 0 $ 0
