Variable and Absorption Costing

Summarized data for the first year of operations for Trenton Products, Inc., are as follows:

Sales $(200,000$ units$)$ $$16,000,000$ Production costs $(210,000$ units$)$ Direct material $4,200,000$ Direct labor $3,360,000$ Manufacturing overhead: Variable $2,520,000$ Fixed $2,100,000$ Operating expenses: Variable $1,120,000$ Fixed $1,280,000$

a$.$ Prepare an income statement based on full absorption costing.

Only use a negative sign with your answer for net income $($loss$),$ if the answer represents a net loss. Otherwise, do not use negative signs with any answers. Round answers to the nearest whole number, when applicable.

Absorption Costing Income Statement Sales Cost of Goods Sold: Beginning Inventory Direct materials Direct labor Less: Ending Inventory Cost of Goods Sold Net Income $($Loss$)$

b$.$ Prepare an income statement based on variable costing.

Only use a negative sign with your answer for net income $($loss$),$ if the answer represents a net loss. Otherwise, do not use negative signs with any answers. Round answers to the nearest whole number, when applicable.

Variable Costing Income Statement Sales Variable cost of Goods Sold: Beginning Inventory Direct materials Direct labor Less: Ending Inventory Variable cost of goods sold Fixed costs: Operating expenses Total Fixed Cost Net Income $($Loss$)$

c$.$ Assume that you must decide quickly whether to accept a special one$-$time order for $1,000$ units for $$56$ per unit.

Which income statement presents the most relevant data? Answer

Determine the apparent profit or loss on the special order based solely on these data.

Use a negative sign with your answer if the special order creates an apparent loss. Round answer to the nearest whole number.

$Answer

d$.$ If the ending inventory is destroyed by fire, which costing approach would you use as a basis for filing an insurance claim for the fire loss? Why?

Select the most appropriate statement.

Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs.Variable and Absorption Costing

Summarized data for the first year of operations for Trenton Products, Inc., are as follows:

a$.$ Prepare an income statement based on full absorption costing.

b$.$ Prepare an income statement based on variable costing.

c$.$ Assume that you must decide quickly whether to accept a special one$-$time order for $1,000$ units for $$56$ per unit.

Which income statement presents the most relevant data:

Determine the apparent profit or loss on the special order based solely on these data.

Use a negative sign with your answer if the special order creates an apparent loss. Round answer to the nearest whole number.