Question 20

Bella, Inc. has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The absorption costing income statements for these 2 years were:

		Year 1				Year 2
Sales		$16,000				$18,000
Less cost of goods sold:
Beginning inventory		$ 0				$ 2,200
Product costs		11,000				9,400
Ending inventory		(2,200)		8,800		(1,175)		10,425
Gross profit				7,200				7,575
Less operating expenses:
Variable		1,200				1,350
Fixed		5,000		6,200		5,000		6,350
Operating income				$ 1,000				$ 1,225

Operating income for year 1 using variable costing would be

$1,600.

$(2,800).

$2,200.

$400.

Bella, Inc. has operated for 2 years. During that time it produced 1,000 units in year 1 and 800 in year 2, while sales were 800 units in year 1 and 900 in year 2. Variable production costs were $8 per unit during both years. The absorption costing income statements for these 2 years were:

		Year 1				Year 2
Sales		$16,000				$18,000
Less cost of goods sold:
Beginning inventory		$ 0				$ 2,200
Product costs		11,000				9,400
Ending inventory		(2,200)		8,800		(1,175)		10,425
Gross profit				7,200				7,575
Less operating expenses:
Variable		1,200				1,350
Fixed		5,000		6,200		5,000		6,350
Operating income				$ 1,000				$ 1,225

Ending inventory for year 2 using variable costing would be

$2,200.

$1,100.

$1,175.

$800.

Baylor, Inc. just finished its second year of operations. In the first year it produced 1,000 units and sold 400. The second year resulted in the same production level, but sales were 1,200 units. The variable costing income statements for both years are shown below:

		Year 1				Year 2
Sales		$ 40,000				$120,000
Variable cost of goods sold		$22,000				$66,000
Variable selling and administration		800		22,800		2,400		68,400
Contribution margin				17,200				51,600
Fixed overhead		30,000				30,000
Fixed selling and administration		15,000		45,000		15,000		45,000
Operating income				$(27,800)				$6,600

The operating income for year 1 using absorption costing would be

$6,000.

$(9,000).

$(9,800).

$600.

Question 23

Baylor, Inc. just finished its second year of operations. In the first year it produced 1,000 units and sold 400. The second year resulted in the same production level, but sales were 1,200 units. The variable costing income statements for both years are shown below:

		Year 1				Year 2
Sales		$ 40,000				$120,000
Variable cost of goods sold		$22,000				$66,000
Variable selling and administration		800		22,800		2,400		68,400
Contribution margin				17,200				51,600
Fixed overhead		30,000				30,000
Fixed selling and administration		15,000		45,000		15,000		45,000
Operating income				$(27,800)				$6,600

The ending inventory for year 2 using absorption costing would be

$51,000.

$34,000.

$22,000.

$17,000.

24. Baylor, Inc. just finished its second year of operations. In the first year it produced 1,000 units and sold 400. The second year resulted in the same production level, but sales were 1,200 units. The variable costing income statements for both years are shown below:

		Year 1				Year 2
Sales		$ 40,000				$120,000
Variable cost of goods sold		$22,000				$66,000
Variable selling and administration		800		22,800		2,400		68,400
Contribution margin				17,200				51,600
Fixed overhead		30,000				30,000
Fixed selling and administration		15,000		45,000		15,000		45,000
Operating income				$(27,800)				$6,600

The operating income for year 2 using absorption costing would be

$(9,800).

$600.

$(9,000).

$6,000.

25. Variable costing income for the period July 1 through September 30 was $400. Inventory data are as follows:

		Absorption Costing		Variable Costing
July 1		$1,600		$1,200
September 30		1,900		1,400

What is the income if absorption costing is used?

$300

$500

$400

$600