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: Selling price per unit Number of units sold Number of units produced Beginning inventory (units) Ending inventory (units) Year 1 Year 2 $500 $500 10,000 12,000 12,500 11,000 7,500 10,000 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. Year 1 $ 2,700,000 Sales CGS Bird's Eye View Income Statements (Absorption) For the Years Ended December 31, Year 1 and Year 2 Year 2 $ 5,000,000 $ 6,000,000 ✓ $ 3,240,000 ✓ Underapplied FOH 0 0% 0 x 0 % Gross profit $ 2,300,000 $ 2,760,000 × S&A: Variable Fixed $ 500,000 180,000 Income before taxes $ 0 x 600,000 ✔ 180,000 ✔ $ 1,620,000 ✓ 0 × $1,980,000 × 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. Sales CGS Product CM Variable S&A Total CM Fixed costs: Bird's Eye View Income Statements (Variable) For the Years Ended December 31, Year 1 and Year 2 Factory S&A Income before taxes Year 1 Year 2 $ 5,000,000 2,100,000 ✓ $ 6,000,000 2,520,000 ✔ $ 2,900,000 ✓ $ 3,480,000 ✓ 0 × 0 × $ 0 × $ 0 x $ 0 × 0 × 0 × 0 × 0 × 0 × $ 0 × $ 0 × c. Reconcile the differences in income for the two methods. Net income (absorption) $ Net income (variable) Year 1 1,620,000 $ 2,220,000 x Year 2 1,980,000 x 2,700,000 x Difference in income $ 0 × $ 0 × Difference equals inventory change $ 0 * $ 0 × Times FOH application rate 0 × 0 × Difference in income $ 0 x $ 0 × Check
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: Selling price per unit Number of units sold Number of units produced Beginning inventory (units) Ending inventory (units) Year 1 Year 2 $500 $500 10,000 12,000 12,500 11,000 7,500 10,000 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. Year 1 $ 2,700,000 Sales CGS Bird's Eye View Income Statements (Absorption) For the Years Ended December 31, Year 1 and Year 2 Year 2 $ 5,000,000 $ 6,000,000 ✓ $ 3,240,000 ✓ Underapplied FOH 0 0% 0 x 0 % Gross profit $ 2,300,000 $ 2,760,000 × S&A: Variable Fixed $ 500,000 180,000 Income before taxes $ 0 x 600,000 ✔ 180,000 ✔ $ 1,620,000 ✓ 0 × $1,980,000 × 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. Sales CGS Product CM Variable S&A Total CM Fixed costs: Bird's Eye View Income Statements (Variable) For the Years Ended December 31, Year 1 and Year 2 Factory S&A Income before taxes Year 1 Year 2 $ 5,000,000 2,100,000 ✓ $ 6,000,000 2,520,000 ✔ $ 2,900,000 ✓ $ 3,480,000 ✓ 0 × 0 × $ 0 × $ 0 x $ 0 × 0 × 0 × 0 × 0 × 0 × $ 0 × $ 0 × c. Reconcile the differences in income for the two methods. Net income (absorption) $ Net income (variable) Year 1 1,620,000 $ 2,220,000 x Year 2 1,980,000 x 2,700,000 x Difference in income $ 0 × $ 0 × Difference equals inventory change $ 0 * $ 0 × Times FOH application rate 0 × 0 × Difference in income $ 0 x $ 0 × Check
Chapter10: Short-term Decision Making
Section: Chapter Questions
Problem 7PB: Remarkable Enterprises requires four units of part A for every unit of Al that it produces....
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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 $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:
Selling price per unit
Number of units sold
Number of units produced
Beginning inventory (units)
Ending inventory (units)
Year 1 Year 2
$500 $500
10,000 12,000
12,500 11,000
7,500 10,000
10,000
?
Transcribed Image Text: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.
Year 1
$ 2,700,000
Sales
CGS
Bird's Eye View
Income Statements (Absorption)
For the Years Ended December 31, Year 1 and Year 2
Year 2
$ 5,000,000
$ 6,000,000 ✓
$ 3,240,000 ✓
Underapplied FOH
0
0%
0 x
0 %
Gross profit
$ 2,300,000
$ 2,760,000 ×
S&A:
Variable
Fixed
$
500,000
180,000
Income before taxes
$
0 x
600,000 ✔
180,000 ✔
$ 1,620,000 ✓
0 ×
$1,980,000 ×
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.
Sales
CGS
Product CM
Variable S&A
Total CM
Fixed costs:
Bird's Eye View
Income Statements (Variable)
For the Years Ended December 31, Year 1 and Year 2
Factory
S&A
Income before taxes
Year 1
Year 2
$ 5,000,000
2,100,000 ✓
$ 6,000,000
2,520,000 ✔
$ 2,900,000 ✓
$ 3,480,000 ✓
0 ×
0 ×
$
0 ×
$
0 x
$
0 ×
0 ×
0 ×
0 ×
0 ×
0 ×
$
0 ×
$
0 ×
c. Reconcile the differences in income for the two methods.
Net income (absorption)
$
Net income (variable)
Year 1
1,620,000 $
2,220,000 x
Year 2
1,980,000 x
2,700,000 x
Difference in income
$
0 × $
0 ×
Difference equals inventory change $
0 * $
0 ×
Times FOH application rate
0 ×
0 ×
Difference in income
$
0 x $
0 ×
Check
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