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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.
- Prepare an income statement assuming Snowball Ltd. uses variable costing.
- 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.
- Compute the breakeven point in units sold assuming Snowball Ltd. uses the following:
- Variable costing
- Absorption costing (Production =1800 boards)
- 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.
- 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?
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