Under full (= absorption) costing, unit cost of goods manufactured shall consider both variable and fixed manufacturing costs incurred to produce the number goods. Therefore, Direct material cost per unit Direct labor cost per unit Variable mfg. overhead per unit Total variable cost per unit Fixed mfg, overhead per unit Product cost per unit Year-1 $142.00 $57.00 $38.00 $237.00 $48.00 $285.00 Year-2 $142.00 $57.00 $38.00 $237.00 $58.00 _[Ref: NOTE] $295.00 NOTE: For Year-1, $139200 / 2900 units produced = $48; For Year-2, $139200 / 2400 units produced = $58. Full (= Absorption Costing) Income Statement a) Year-1 b) Year-2 Sales Revenue $969,800 $969,800 [year-1 = 2600 units x $373; Year-2 = 2600 units X $373] Cost of Goods Sold $741,000 $764,000 [Year-1 = 2600 units x $285; Year-2 = (300 units x $285) + (2300 units x $295) Gross Profit $228,800 $205,800 (Sales Revenue - Cost of Goods Sold] Selling Expenses $90,000 $90,000 [year-1 = (2600 x $5) + $77000; Year-2 = 12600 x $5) + $77000) Net Operating Income $138,800 $115,800 $38 Under variable costing, unit product cost shall consider only variable mfg. costs incurred to produce the number goods. Therefore, Year-1 Year-2 Direct materials $142 $142 Direct labor $57 $57 Total variable cost per unit $38 Unit product cost $237 $237 Variable Costing Income Statement Year-1 d) Year-2 Sales Revenue $969,800 $969,800 [Year-1 = 2600 units x $373; Year-2 = 2600 units x $373] Variable Expenses: Direct materials $369,200 $369,200 Year-1 = 2600 units x $142; Year-2 = 2600 units x $142] Direct labor $148,200 $148,200 [Year-1 = 2600 units X $57; Year-2 = 2600 units X $57] Variable mfg. overhead $98,800 $98,800 [Year-1 = 2600 units X $38; Year-2 = 2600 units x $38] Variable Selling Expenses $13,000 $13,000 (Year-1 = 2600 units x $5; Year-2 = 2600 units x $5] Total Variable Expenses $629,200 $629,200 Contribution Margin $340,600 $340,600 (Sales Revenue - Total Variable Expenses] Fixed Expenses: Fixed Manufacturing costs $139,200 $139,200 (Fully charged as expense] Fixed Selling Expenses $77,000 $77,000 (Fully charged as expense] Total Fixed Expenses $216,200 $216,200 Net Operating Income $124,400 $124,400 Contribution margin - Total Fixed Expenses] 3. Make a note of the absorption costing net operating income (loss) in Year 2. At the end of Year 1, the company's board of directors set a target for Year 2 of net operating income of $180,000 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 4,800 units. (a) Would this change result in a bonus being paid to the CEO? Yes O 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 2,600 units per year? Yes O No (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.) Units were left over from the previous year. The cost of goods sold is always less under variable costing than under absorption costing. Sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing. Under full (= absorption) costing, unit cost of goods manufactured shall consider both variable and fixed manufacturing costs incurred to produce the number goods. Therefore, Direct material cost per unit Direct labor cost per unit Variable mfg. overhead per unit Total variable cost per unit Fixed mfg, overhead per unit Product cost per unit Year-1 $142.00 $57.00 $38.00 $237.00 $48.00 $285.00 Year-2 $142.00 $57.00 $38.00 $237.00 $58.00 _[Ref: NOTE] $295.00 NOTE: For Year-1, $139200 / 2900 units produced = $48; For Year-2, $139200 / 2400 units produced = $58. Full (= Absorption Costing) Income Statement a) Year-1 b) Year-2 Sales Revenue $969,800 $969,800 [year-1 = 2600 units x $373; Year-2 = 2600 units X $373] Cost of Goods Sold $741,000 $764,000 [Year-1 = 2600 units x $285; Year-2 = (300 units x $285) + (2300 units x $295) Gross Profit $228,800 $205,800 (Sales Revenue - Cost of Goods Sold] Selling Expenses $90,000 $90,000 [year-1 = (2600 x $5) + $77000; Year-2 = 12600 x $5) + $77000) Net Operating Income $138,800 $115,800 $38 Under variable costing, unit product cost shall consider only variable mfg. costs incurred to produce the number goods. Therefore, Year-1 Year-2 Direct materials $142 $142 Direct labor $57 $57 Total variable cost per unit $38 Unit product cost $237 $237 Variable Costing Income Statement Year-1 d) Year-2 Sales Revenue $969,800 $969,800 [Year-1 = 2600 units x $373; Year-2 = 2600 units x $373] Variable Expenses: Direct materials $369,200 $369,200 Year-1 = 2600 units x $142; Year-2 = 2600 units x $142] Direct labor $148,200 $148,200 [Year-1 = 2600 units X $57; Year-2 = 2600 units X $57] Variable mfg. overhead $98,800 $98,800 [Year-1 = 2600 units X $38; Year-2 = 2600 units x $38] Variable Selling Expenses $13,000 $13,000 (Year-1 = 2600 units x $5; Year-2 = 2600 units x $5] Total Variable Expenses $629,200 $629,200 Contribution Margin $340,600 $340,600 (Sales Revenue - Total Variable Expenses] Fixed Expenses: Fixed Manufacturing costs $139,200 $139,200 (Fully charged as expense] Fixed Selling Expenses $77,000 $77,000 (Fully charged as expense] Total Fixed Expenses $216,200 $216,200 Net Operating Income $124,400 $124,400 Contribution margin - Total Fixed Expenses] 3. Make a note of the absorption costing net operating income (loss) in Year 2. At the end of Year 1, the company's board of directors set a target for Year 2 of net operating income of $180,000 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 4,800 units. (a) Would this change result in a bonus being paid to the CEO? Yes O 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 2,600 units per year? Yes O No (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.) Units were left over from the previous year. The cost of goods sold is always less under variable costing than under absorption costing. Sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing