Third Street Manufacturing Company has no beginning inventory, and sales are estimated to be 40,000units at $100 per unit. Third Street's management is evaluating whether to manufacture 40,000 units(Proposal 1) or 50,000 units (Proposal 2). Sales will not change if more than 40,000 units aremanufactured. The costs and expenses for each proposal follow:Proposal 1:Proposal 2:40,000 Units Manufactured50,000 Units ManufacturedTotal costNumber ofUnitcostTotal costNumber ofUnitunitsunitscostManufacturing costs:Variable$1,200,00040,000$30$1,600,00050,000$32Fixed600,00040,00015600,00050,00012Total$1.800.000$2.200.000Selling and administrative expenses:Variable$ 210,000$ 210,000Fixed140,000140,000Total$ 350.000$ 350.000a.Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) theabsorption costing format and (2) the variable costing format.b.What is the reason for the difference in operating income reported for the two levels of production by the absorption costingincome statement?

Under absorption costing gross profit is calculated by deducting all manufacturing costs from the…

a.Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. b.What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement?

a.Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. b.What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement?

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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Concept explainers

Pricing

Pricing is used as a term in finance and economics, pricing is the process of fixing a value for a product or a service. Pricing establishes a value for a product or service that the customer has to pay. A business can choose from different strategies while deciding to set prices.

Question

Third Street Manufacturing Company has no beginning inventory, and sales are estimated to be 40,000
units at $100 per unit. Third Street's management is evaluating whether to manufacture 40,000 units
(Proposal 1) or 50,000 units (Proposal 2). Sales will not change if more than 40,000 units are
manufactured. The costs and expenses for each proposal follow:
Proposal 1:
Proposal 2:
40,000 Units Manufactured
50,000 Units Manufactured
Total cost
Number of
Unit
cost
Total cost
Number of
Unit
units
units
cost
Manufacturing costs:
Variable
$1,200,000
40,000
$30
$1,600,000
50,000
$32
Fixed
600,000
40,000
15
600,000
50,000
12
Total
$1.800.000
$2.200.000
Selling and administrative expenses:
Variable
$ 210,000
$ 210,000
Fixed
140,000
140,000
Total
$ 350.000
$ 350.000
a.Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the
absorption costing format and (2) the variable costing format.
b.What is the reason for the difference in operating income reported for the two levels of production by the absorption costing
income statement?

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