Absorption and variable costingBird’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 $750,000; it uses expected capacity of 12,500 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 $180,000. The following additional information is available: Year 1 Year 2 Selling price per unit $500 $500 Number of units sold 10,000 12,000 Number of units produced 12,500 11,000 Beginning inventory (units) 7,500 10,000 Ending inventory (units) 10,000 ? 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 CGS Underapplied FOH Gross profit S&A: Variable Fixed Income before taxes 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 CGS Product CM Variable S&A Total CM Fixed costs: Factory S&A Income before taxes c. Reconcile the differences in income for the two methods. Year 1 Year 2 Net income (absorption) Net income (variable) Difference in income Difference equals inventory change Times FOH application rate Difference in income

Absorption and variable costingBird’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 $750,000; it uses expected capacity of 12,500 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 $180,000. The following additional information is available: Year 1 Year 2 Selling price per unit $500 $500 Number of units sold 10,000 12,000 Number of units produced 12,500 11,000 Beginning inventory (units) 7,500 10,000 Ending inventory (units) 10,000 ? 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 CGS Underapplied FOH Gross profit S&A: Variable Fixed Income before taxes 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 CGS Product CM Variable S&A Total CM Fixed costs: Factory S&A Income before taxes c. Reconcile the differences in income for the two methods. Year 1 Year 2 Net income (absorption) Net income (variable) Difference in income Difference equals inventory change Times FOH application rate Difference in income

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter20: Inventory Management: Economic Order Quantity, Jit, And The Theory Of Constraints

Section: Chapter Questions

Problem 3CE: Patz Company produces two types of machine parts: Part A and Part B, with unit contribution margins...

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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 $750,000; it uses expected capacity of 12,500 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 $180,000. The following additional information is available:

	Year 1	Year 2
Selling price per unit	$500	$500
Number of units sold	10,000	12,000
Number of units produced	12,500	11,000
Beginning inventory (units)	7,500	10,000
Ending inventory (units)	10,000	?

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
CGS
Underapplied FOH
Gross profit
S&A:
Variable
Fixed
Income before taxes

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
CGS
Product CM
Variable S&A
Total CM
Fixed costs:
Factory
S&A
Income before taxes

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

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

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