Absorption and variable costing Bird’s Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The company’s annual fixed overhead cost is $1,800,000; it uses expected capacity of 30,000 units produced as the basis for applying fixed overhead to products. A commission of 10 percent of the selling price is paid on each unit sold. Annual fixed selling and administrative expenses are $432,000. The following additional information is available: Year 1 Year 2 Selling price per unit $500 $500 Number of units sold 24,000 28,800 Number of units produced 30,000 26,400 Beginning inventory (units) 18,000 24,000 Ending inventory (units) 24,000 ? a. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers. Bird’s Eye View Income Statements (Absorption) For the Years Ended December 31, Year 1 and Year 2 Year 1 Year 2 Sales Answer Answer CGS Answer Answer Underapplied FOH Answer Answer Answer Answer Gross profit Answer Answer S&A: Variable Answer Answer Fixed Answer Answer Answer Answer Income before taxes Answer Answer b. Prepare pre-tax income statements under variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers. Bird’s Eye View Income Statements (Variable) For the Years Ended December 31, Year 1 and Year 2 Year 1 Year 2 Sales Answer Answer CGS Answer Answer Product CM Answer Answer Variable S&A Answer Answer Total CM Answer Answer Fixed costs: Factory Answer Answer S&A Answer Answer Answer Answer Income before taxes Answer Answer c. Reconcile the differences in income for the two methods. Year 1 Year 2 Net income (absorption) Answer Answer Net income (variable) Answer Answer Difference in income Answer Answer Difference equals inventory change Answer Answer Times FOH application rate Answer Answer Difference in income Answer Answer

Absorption and variable costing Bird’s Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The company’s annual fixed overhead cost is $1,800,000; it uses expected capacity of 30,000 units produced as the basis for applying fixed overhead to products. A commission of 10 percent of the selling price is paid on each unit sold. Annual fixed selling and administrative expenses are $432,000. The following additional information is available: Year 1 Year 2 Selling price per unit $500 $500 Number of units sold 24,000 28,800 Number of units produced 30,000 26,400 Beginning inventory (units) 18,000 24,000 Ending inventory (units) 24,000 ? a. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers. Bird’s Eye View Income Statements (Absorption) For the Years Ended December 31, Year 1 and Year 2 Year 1 Year 2 Sales Answer Answer CGS Answer Answer Underapplied FOH Answer Answer Answer Answer Gross profit Answer Answer S&A: Variable Answer Answer Fixed Answer Answer Answer Answer Income before taxes Answer Answer b. Prepare pre-tax income statements under variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. Note: Do not use negative signs in your answers. Bird’s Eye View Income Statements (Variable) For the Years Ended December 31, Year 1 and Year 2 Year 1 Year 2 Sales Answer Answer CGS Answer Answer Product CM Answer Answer Variable S&A Answer Answer Total CM Answer Answer Fixed costs: Factory Answer Answer S&A Answer Answer Answer Answer Income before taxes Answer Answer c. Reconcile the differences in income for the two methods. Year 1 Year 2 Net income (absorption) Answer Answer Net income (variable) Answer Answer Difference in income Answer Answer Difference equals inventory change Answer Answer Times FOH application rate Answer Answer Difference in income Answer Answer

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Absorption and variable costing
Bird’s Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The company’s annual fixed overhead cost is $1,800,000; it uses expected capacity of 30,000 units produced as the basis for applying fixed overhead to products. A commission of 10 percent of the selling price is paid on each unit sold. Annual fixed selling and administrative expenses are $432,000. The following additional information is available:

	Year 1	Year 2
Selling price per unit	$500	$500
Number of units sold	24,000	28,800
Number of units produced	30,000	26,400
Beginning inventory (units)	18,000	24,000
Ending inventory (units)	24,000	?

a. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold.
Note: Do not use negative signs in your answers.

Bird’s Eye View
Income Statements (Absorption)
For the Years Ended December 31, Year 1 and Year 2
	Year 1		Year 2
Sales		Answer		Answer
CGS	Answer		Answer
Underapplied FOH	Answer	Answer	Answer	Answer
Gross profit		Answer		Answer
S&A:
Variable	Answer		Answer
Fixed	Answer	Answer	Answer	Answer
Income before taxes		Answer		Answer

b. Prepare pre-tax income statements under variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold.
Note: Do not use negative signs in your answers.

Bird’s Eye View
Income Statements (Variable)
For the Years Ended December 31, Year 1 and Year 2
	Year 1		Year 2
Sales		Answer		Answer
CGS		Answer		Answer
Product CM		Answer		Answer
Variable S&A		Answer		Answer
Total CM		Answer		Answer
Fixed costs:
Factory	Answer		Answer
S&A	Answer	Answer	Answer	Answer
Income before taxes		Answer		Answer

c. Reconcile the differences in income for the two methods.

	Year 1	Year 2
Net income (absorption)	Answer	Answer
Net income (variable)	Answer	Answer
Difference in income	Answer	Answer
Difference equals inventory change	Answer	Answer
Times FOH application rate	Answer	Answer
Difference in income	Answer	Answer

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