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To determine the effect of different levels of production on the companys income, move to cell B7 (Actual production). Change the number in B7 to
- To determine the effect of different levels of production on the companys income, move to cell B7 (Actual production). Change the number in B7 to the different production levels given in the table below. The first level, 100,000, is the current level. What happens to the operating income on both statements as production levels change? Enter the operating incomes in the following table.
Operating Income January | |||
| Production Level | Production Level | Production Level |
| 100,000 | 90,000 | 80,000 |
Absorption | $_______________ | $_______________ | $_______________ |
Variable | $_______________ | $_______________ | $_______________ |
Does the level of production affect income under either costing method? Explain your findings.
Data Section | ||
Actual production in units | 100,000 | |
Sales in units | 80,000 | |
Sales price per unit | $30 | |
Variable manufacturing costs per unit | $14 | |
Variable selling costs per unit | $2 | |
Fixed manufacturing costs | $315,000 | |
Fixed selling expenses | $100,000 | |
Answer Section | ||
Income statement: Absorption costing | ||
Sales | $2,400,000 | |
Cost of goods sold: | ||
Variable manufacturing costs | $1,400,000 | |
Fixed manufacturing costs | 315,000 | |
Total goods available for sale | $1,715,000 | |
Less ending inventory | 343,000 | |
Cost of goods sold | 1,372,000 | |
Gross profit | $1,028,000 | |
Selling expenses: | ||
Fixed selling expenses | $160,000 | |
Variable selling expenses | 100,000 | |
Total selling expenses | 260,000 | |
Operating income | $768,000 | |
Income statement: Variable costing | ||
Sales | $2,400,000 | |
Cost of goods sold: | ||
Variable manufacturing costs | $1,400,000 | |
Less ending inventory | 280,000 | |
Variable cost of goods sold | 1,120,000 | |
Manufacturing margin | $1,280,000 | |
Variable selling expenses | FORMULA9 | |
Contribution margin | $1,280,000 | |
Fixed costs: | ||
Fixed manufacturing costs | FORMULA10 | |
Fixed selling expenses | 100,000 | |
Total fixed costs | 100,000 | |
Operating income | $1,180,000 | |
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