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FINANCIAL ACCOUNTING
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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Donovan Inc. calculates income under absorption costing. The company provides bonuses to managers based on the operating income of the division. In 2021, the Deck division has the following financial results: Sales (100,000 units) 2$ 8,000,000 Cost of Goods Sold Opening Inventory Cost of Goods Manufactured (125,000 units) 4,500,000 3,000,000 7,500,000 1,500,000 6,000,000 2,000,000 Variable Costs Fixed Costs Ending Inventory COGS -$ $ Gross Margin Selling and Admin Expenses Variable $ 650,000 Fixed 1,000,000 1,650,000 350,000 Operating Income The old manager for the Deck division left in early 2021. A new manager was hired in 2022. The new manager produced 90,000 units and sold 98,000 units in 2022. REQUIRED A) Calculate the operating income for 2022 using absorption costing. Use an income statement to show your work. B) Calculate the operating income for 2022 using variable costing. Do not use an income statement as part of your calculation.
Transcribed Image Text:Donovan Inc. calculates income under absorption costing. The company provides bonuses to managers based on the operating income of the division. In 2021, the Deck division has the following financial results: Sales (100,000 units) 2$ 8,000,000 Cost of Goods Sold Opening Inventory Cost of Goods Manufactured (125,000 units) 4,500,000 3,000,000 7,500,000 1,500,000 6,000,000 2,000,000 Variable Costs Fixed Costs Ending Inventory COGS -$ $ Gross Margin Selling and Admin Expenses Variable $ 650,000 Fixed 1,000,000 1,650,000 350,000 Operating Income The old manager for the Deck division left in early 2021. A new manager was hired in 2022. The new manager produced 90,000 units and sold 98,000 units in 2022. REQUIRED A) Calculate the operating income for 2022 using absorption costing. Use an income statement to show your work. B) Calculate the operating income for 2022 using variable costing. Do not use an income statement as part of your calculation.
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