The Osborne Company uses an absorption-costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $5.00 per unit and other variable manufacturing costs of $1.20 per unit. The standard production rate is 10 units per machine-hour. Total budgeted and actual fixed manufacturing overhead costs are $385,000. Fixed manufacturing overhead is allocated at $7 per machine-hour based on fixed manufacturing costs of $385,00055,000 machine-hours, which is the level Osborne uses as its denominator level. The selling price is $14 per unit. Variable operating (nonmanufacturing) cost, which is driven by units sold, is $2 per unit. Fixed operating (nonmanufacturing) costs are $90,000. Beginning inventory in 2020 is 20,000 units; ending inventory is 35,000 units. Sales in 2020 are 475,000 units. The same standard unit costs persisted throughout 2019 and 2020 . For simplicity, assume that there are no price, spending, or efficiency variances. Read the requirements. Requirement 1. Prepare an income statement for 2020 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. Complete the top half of the income statement first, then complete the bottom portion. (Label the variance as favorable (F) or unfavorable (U).) Requirement 2. The president has heard about variable costing. She asks you to recast the 2020 statement as it would appear under variable costing. Requirement 2. The president has heard about variable costing. She asks you to recast the 2020 statement as it would appear under variable costing. Complete the top half of the income statement first, then complete the bottom portion. (Enter a "0" for any $0 balances.) Requirement 3. Explain the difference in operating income as calculated in requirements 1 and 2 . The difference between absorption and variable costing is due solely to moving nto inventories as inventories and out of inventories as they After you hit continue, the screen may take you below the beginning of the next step. If so, scroll back up to the top of the step.) Requirement 4. Graph how fixed manufacturing overhead is accounted for under absorption costing. That is, there will be two lines: one for the budgeted fixed manufacturing overhead (which is equal to the actual fixed manufacturing overhead in this case) and one for the fixed manufacturing overhead allocated. Show the production-volume variance in the graph. Begin by drawing two lines: one for the budgeted fixed manufacturing overhead and one for the fixed manufacturing overhead allocated. Next shade the areas, by selecting the region shading tool, hat would represent the favorable and unfavorable production-volume variance areas. Lastly, label the two lines and two shaded areas. (Enlarge the graph to medium size and use the line tool and egion shading tool buttons displayed to draw the graph.) Requirement 5. Critics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. (a) Is variable costing or absorption costing more likely to lead to such buildups? Why? (b) What can be done to counteract undesirable inventory buildups? a) Is variable costing or absorption costing more likely to lead to such buildups? Why? costing is more likely to lead to buildups of inventory. enables managers to by building up inventory which included in the current period's cost of goods sold. (b) Select three things that can be done to counteract undesirable inventory buildups. he Osborne Company uses an absorption-costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $5.00 per unit and other variable manufacturing osts of $1.20 per unit. The standard production rate is 10 units per machine-hour. Total budgeted and actual fixed manufacturing overhead costs are $385,000. Fixed manufacturing overhead is Ilocated at $7 per machine-hour based on fixed manufacturing costs of $385,00055,000 machine-hours, which is the level Osborne uses as its denominator level. The selling price is $14 per unit. 'ariable operating (nonmanufacturing) cost, which is driven by units sold, is $2 per unit. Fixed operating (nonmanufacturing) costs are $90,000. Beginning inventory in 2020 is 20,000 units; ending iventory is 35,000 units. Sales in 2020 are 475,000 units. The same standard unit costs persisted throughout 2019 and 2020 . For simplicity, assume that there are no price, spending, or efficiency ariances. Read the requirements. Requirements 1. Prepare an income statement for 2020 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. 2. The president has heard about variable costing. She asks you to recast the 2020 statement as it would appear under variable costing. 3. Explain the difference in operating income as calculated in requirements 1 and 2. 4. Graph how fixed manufacturing overhead is accounted for under absorption costing. That is, there will be two lines: one for the budgeted fixed manufacturing overhead (which is equal to the actual fixed manufacturing overhead in this case) and one for the fixed manufacturing overhead allocated. Show the production-volume variance in the graph. 5. Critics have claimed that a widely used accounting system has led to undesirable buildups of inventory levels. (a) Is variable costing or absorption costing more likely to lead to such buildups? Why? (b) What can managers do to counteract undesirable inventory buildups