Question 5

ABC Pumps is a division of ABC Controls. The division manufactures and sells a pump in a variety of applications.

During the coming year, it projects the following sales:

25,000 units

$17 per unit

The manager is considering producing either this level or 10,000 units more.

The following information is available to help in the decision:

0	Beginning Inventory
$25,000	Expected Sales
$17.00	Expected Sales Price per Unit
$6.00	Variable Manufacturing Cost per Unit
$140,000	Total Fixed Manufacturing Overhead
$5.60	Fixed Manufacturing Costs
$4.00	Fixed Manufacturing Costs (Plus 10,000 Units)
$11.60	Total Manufacturing Costs Including Fixed
$10.00	Total Manufacturing Costs Including Fixed (Plus 10,000 Units)
$37,000	Selling and Admin Costs (All Fixed)

Instructions

Prepare an absorption costing income statement showing results for both levels of production.

Why is income different for the two production levels when the sales levels are the same, either way?