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 $1,350,000; it uses expected capacity of 22,500 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 $324,000. The following additional information is available: Year 1 Year 2 $500 $500 18,000 21,600 Number of units produced 22,500 19,800 Beginning inventory (units) 13,500 18,000 Ending inventory (units) 18,000 ? Selling price per unit Number of units sold 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.
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 $1,350,000; it uses expected capacity of 22,500 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 $324,000. The following additional information is available: Year 1 Year 2 $500 $500 18,000 21,600 Number of units produced 22,500 19,800 Beginning inventory (units) 13,500 18,000 Ending inventory (units) 18,000 ? Selling price per unit Number of units sold 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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 $1,350,000; it uses expected capacity
of 22,500 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 $324,000. The following additional
information is available:
Year 1 Year 2
$500 $500
Selling price per unit
Number of units sold
18,000 21,600
Number of units produced 22,500 19,800
Beginning inventory (units) 13,500 18,000
Ending inventory (units) 18,000
?
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 old.
Note: Do not use negative signs in your answers.
Transcribed Image Text:Sales
CGS
Bird's Eye View
Income Statements (Absorption)
For the Years Ended December 31, Year 1 and Year 2
Year 1
Year 2
Underapplied FOH
Gross profit
S&A:
Variable
Fixed
Income before taxes
Sales
CGS
Product CM
Variable S&A
Total CM
Fixed costs:
$
$
Factory
S&A
Income before taxes
0
0
$
0
0
$
Times FOH application rate
Difference in income
$
0
0
$
$
$
$
$
Net income (absorption)
Net income (variable)
Difference in income
$
Difference equals inventory change $
Bird's Eye View
Income Statements (Variable)
For the Years Ended December 31, Year 1 and Year 2
Year 1
Year 2
0
$
0
0
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.
$
0
0
0
0
0
0
0
Year 1
$
0
0
$
$
0 $
0
0
ܘ
ܘ
ܘܐ
$
0 $
0
0
c. Reconcile the differences in income for the two methods.
0 $
0
0
0
0
0
Year 2
$
$
$
$
$
$
$
0
0
0
oooo
0
0
0
0
0
0
0
0
0
0
0
0
0
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