2. Happy Wheels has this information for its manufacturing:Direct MaterialsDirect laborVariable manufacturing overheadFixed manufacturing overheadUnits producedUnits soldIts income statement under absorption costing is:SalesBeginning InventoryCost of Goods ManufacturedCost of Goods Available for SaleEnding Inventory-Cost of Goods SoldGross Profit- Sales and Administration ExpensesVariableFixedTotal Sales and Administration ExpensesNet Operating Income$15$15$ 3$2527,00019,000$1,900,50001,566,0001,566,000464,0001,102,000798,500133,000300,000433,000$365,500a.Prepare an income statement according to the variable costing concept.b. If Happy Wheels reduced its inventories during the period, what impact would that haveon the income from operations determined under absorption costing?

Answered: 2. Happy Wheels has this information…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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2. Happy Wheels has this information for its manufacturing:
Direct Materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Units produced
Units sold
Its income statement under absorption costing is:
Sales
Beginning Inventory
Cost of Goods Manufactured
Cost of Goods Available for Sale
Ending Inventory
-
Cost of Goods Sold
Gross Profit
- Sales and Administration Expenses
Variable
Fixed
Total Sales and Administration Expenses
Net Operating Income
$15
$15
$ 3
$25
27,000
19,000
$1,900,500
0
1,566,000
1,566,000
464,000
1,102,000
798,500
133,000
300,000
433,000
$365,500
a.
Prepare an income statement according to the variable costing concept.
b. If Happy Wheels reduced its inventories during the period, what impact would that have
on the income from operations determined under absorption costing?

Expert Solution

Step 1 Introduction

The question is based on the concept of Cost Accounting.

Absorption costing includes all the costs directly related with the production of a product. Variable costing includes the variable costs directly incurred in production of a product and without considering the fixed costs.

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