Question 3 (35 marks) Snowball Ltd. manufactures a specialized snowboard made for advanced snowboarders. Snowball Ltd. started 20x2 with an inventory of 480 snowboards. During the year, it produced 1,800 boards and sold 1,990 for $750 each. Fixed production costs were $560,000 and variable production costs were $335 per unit. Fixed advertising, marketing and other general and administrative expenses were $224,000 and variable shipping costs were $15 per board. Assume that the cost of each unit in beginning inventory is equal to 20x2 inventory cost. equired: (a) Prepare an income statement assuming Snowball Ltd. uses variable costing. (7 marks) (b) Prepare an income statement assuming Snowball ltd. uses absorption costing. Snowball Ltd. uses a denominator level of 2,000 units. Production-volume variances are written off to cost of goods sold. (7 marks) (c) Compute the breakeven point in units sold assuming Snowball Ltd. uses the following: (i) Variable costing (ii) Absorption costing (Production =1,800 boards) (4 marks) (d) Assume that $40,000 of fixed administrative costs were reclassified as fixed production costs. Would this change affect breakeven point using variable costing? What if absorption costing were used? Explain. (e) Will the financial statements of a company always differ when different choices are made at the start of the accounting period regarding the denominator-level capacity concept? Question 3 (35 marks) Snowball Ltd. manufactures a specialized snowboard made for advanced snowboarders. Snowball Ltd. started 20x2 with an inventory of 480 snowboards. During the year, it produced 1,800 boards and sold 1,990 for $750 each. Fixed production costs were $560,000 and variable production costs were $335 per unit. Fixed advertising, marketing and other general and administrative expenses were $224,000 and variable shipping costs were $15 per board. Assume that the cost of each unit in beginning inventory is equal to 20x2 inventory cost. equired: (a) Prepare an income statement assuming Snowball Ltd. uses variable costing. (7 marks) (b) Prepare an income statement assuming Snowball ltd. uses absorption costing. Snowball Ltd. uses a denominator level of 2,000 units. Production-volume variances are written off to cost of goods sold. (7 marks) (c) Compute the breakeven point in units sold assuming Snowball Ltd. uses the following: (i) Variable costing (ii) Absorption costing (Production =1,800 boards) (4 marks) (d) Assume that $40,000 of fixed administrative costs were reclassified as fixed production costs. Would this change affect breakeven point using variable costing? What if absorption costing were used? Explain. (e) Will the financial statements of a company always differ when different choices are made at the start of the accounting period regarding the denominator-level capacity concept
