Question
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
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.
Required:
(a) | Prepare an income statement assuming Snowball Ltd. uses variable costing. | (8 marks) |
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(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. | (8 marks) |
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(c) | Compute the breakeven point in units sold assuming Snowball Ltd. uses the following: (i) Variable costing (ii) Absorption costing (Production ,800 boards) | (6 marks) |
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(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. | (6 marks) |
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(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? Discuss. | (6 marks) |
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(f) | What are two ways of reducing the negative aspects associated with using absorption costing to evaluate the performance of a plant manager?
| (6 marks) |
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