The following questions are all apart of the same question just different parts. Use the data above to answer.

(a) What is the net operating income (loss) in Year 1 under absorption costing?

(b) What is the net operating income (loss) in Year 2 under absorption costing?

(c) What is the net operating income (loss) in Year 1 under variable costing?

(d) What is the net operating income (loss) in Year 2 under variable costing?

(e) The net operating income (loss) under absorption costing is less than the net operating income (loss) under variable costing in Year 2 because: (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

a. Units were left over from the previous year. unanswered

b. The cost of goods sold is always less under variable costing than under absorption costing. unanswered

c.Sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing.

Make a note of the absorption costing net operating income (loss) in Year 2

At the end of Year 1, the companys board of directors set a target for Year 2 of net operating income of $40,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 3,800 units.

(a) Would this change result in a bonus being paid to the CEO? Yes or No?

b) What is the net operating income (loss) in Year 2 under absorption costing?

(c) Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,100 units per year? yes or no?

1 Chapter 6: Applying Excel 2 3 Data 4 Selling price per unit 5 Manufacturing costs: 6 7 8 9 10 11 Selling and administrative expenses 12V 13 14 15 16Units in beginning inventory 17Units produced during the year 18 Units sold during the year 324 Variable per unit produced Direct materials Direct labor Variable manufacturing overhead 155 71 21 $ 95,000 Fixed manufacturing overhead per year Variable per unit sold 9 Fixed per year $48,000 Year 1 Year 2 1,900 2,100 2,500 2,100 1 Chapter 6: Applying Excel 2 3 Data 4 Selling price per unit 5 Manufacturing costs: 6 7 8 9 10 11 Selling and administrative expenses 12V 13 14 15 16Units in beginning inventory 17Units produced during the year 18 Units sold during the year 324 Variable per unit produced Direct materials Direct labor Variable manufacturing overhead 155 71 21 $ 95,000 Fixed manufacturing overhead per year Variable per unit sold 9 Fixed per year $48,000 Year 1 Year 2 1,900 2,100 2,500 2,100