Question
Rooney Manufacturing pays its production managers a bonus based on the companys profitability. During the two most recent years, the company maintained the same cost
Rooney Manufacturing pays its production managers a bonus based on the companys profitability. During the two most recent years, the company maintained the same cost structure to manufacture its products. Year Units Produced Units Sold Production and Sales Year 2 4,000 4,000 Year 3 6,000 4,000 Cost Data Direct materials $ 14.90 per unit Direct labor $ 22.20 per unit Manufacturing overheadvariable $ 10.20 per unit Manufacturing overheadfixed $ 101,400 Variable selling and administrative expenses $ 8.50 per unit sold Fixed selling and administrative expenses $ 54,000 (Assume that selling and administrative expenses are associated with goods sold.) Rooney sells its products for $109.60 per unit. Required Prepare income statements based on absorption costing for Year 2 and Year 3. Since Rooney sold the same number of units in Year 2 and Year 3, why did net income increase in Year 3? Determine the costs of ending inventory for Year 3. Prepare income statements based on variable costing for Year 2 and Year 3.
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