QUESTION #1

The manufacturer uses Standard Costing and FIFO. You are given this information:

Information	Prior Year (Budget)	Prior Year (Actual)	Current Year (Budget)	Current Year (Actual)
Beginning Inventory (units)	0	0	0	10,000
Sales (units)	600,000	580,000	575,000	570,000
Manufactured (units)	600,000	590,000	640,000	610,000
Selling Price ($/unit)	9.99	9.90	9.95	10.00
Variable Manufacturing Costs ($/unit)	4.92	4.90	5.00	4.95
Total Fixed Manufacturing Costs ($)	1,584,000	1,561,000	1,625,000	1,599,531
Variable Selling Costs ($/unit)	1.00	1.01	0.99	1.00
Total Fixed Selling and Admin Costs ($)	350,000	353,000	352,850	348,000

Required:

1. Prepare an income statement for the Current Year based on Variable Costing.
2. Prepare an income statement for the Current Year based on Absorption Costing.
3. Reconcile the difference in Net Income between Variable Costing and Absorption Costing for the current year by comparing this difference in income to the differences in ending inventory for Absorption Costing and Variable Costing.

QUESTION #2

Sarah Pill has a renovation business which uses painters to do custom paint jobs for house exteriors. She is trying to get a better idea of her cost structure to be able to bid on contracts as there has been new competition entering her neighbourhood from the downtown area. She has traditionally used the square footage of the houses shes worked on; but noticed that the amount of time taken also differed on the last 2 projects which had a lot of windows and doors, which requires a lot more preparation work.

Information for her last 12 jobs are as follows:

House	Square Footage	Windows & Doors	Costs
1	2,600	13	$3,335
2	3,010	15	$3,742
3	2,800	12	$3,100
4	2,850	12	$3,150
5	4,600	19	$4,700
6	2,700	13	$3,225
7	2,375	11	$2,920
8	2,450	11	$2,836
9	2,600	10	$2,945
10	3,700	16	$4,112
11	2,650	13	$3,210
12	3,550	16	$3,965

Required:

1. How much would Sarah charge for a house with 3,300 square feet and 14 openings, based on:

1. high-low method, based on square footage.
2. high-low method, based on number of windows.
3. regression analysis, based on square footage.
4. regression analysis, based on number of windows.

2. Which method do you recommend? Explain your answer.
3. What other considerations should Sarah take into account? Explain.