Question
Skelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $ 121 Units in
Skelter Corporation, which has only one product, has provided the following data concerning its most recent month of operations:
|
|
|
Selling price | $ | 121 |
Units in beginning inventory |
| 400 |
Units produced |
| 5,600 |
Units sold |
| 5,800 |
Units in ending inventory |
| 200 |
Variable costs per unit: |
|
|
Direct materials | $ | 33 |
Direct labor | $ | 49 |
Variable manufacturing overhead | $ | 1 |
Variable selling and administrative expense | $ | 4 |
Fixed costs: |
|
|
Fixed manufacturing overhead | $ | 140,000 |
Fixed selling and administrative expense | $ | 52,200 |
The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. The company uses LIFO costing.
Required:
Assume the company uses variable costing for internal management purposes. How much is net operating income when variable costing is used?
For financial reporting purposes, the company uses absorption costing. How much is net operating income when absorption costing is used?
Explain the difference in the net operating income numbers computed in parts a and b. Your answer should show the reason for the dollar amount of difference by stating the difference(s) in particular. It is not sufficient to state a general rule that income is higher or lower when either of the methods is used.
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