Blades product division reported the following income statement for its stockholders: Income Statement for Blades Products as of Dec 31,2015 Sales ($75/unit - 400 000 units) $30,000,000 Less Cost of Goods Sold ($55/unit) (22,000,000) Gross Profit 8,000,000 Less: Selling expenses 2,000,000 Admin expenses 1,000,000 (3,000,000) Operating Income 5,000,000 Cost per Unit Direct Material 20 Direct Labour 10 Variable OH cost 15 Fixed OH cost 10 Total 55 In 2015, Blades produced 100,000 units more than it sold because sales were less than that expected. Overhead is applied on the basis of units produced using expected actual activity. There was no under or over-applied overhead. For 2016, fixed costs and variable costs remained the same; the selling price has also stayed the same. Budgeted fixed cost equals to actual fixed cost. In 2016, Blades produced same quantity, but sold 600,000. Production was 100,000 less because of some production problems. Required: Prepare 2016 Income statement under absorption costing system Prepare variable income statement for 2015 and 2016 Reconcile the differences and explain the effect.
Blades product division reported the following income statement for its stockholders:
Income Statement for Blades Products as of Dec 31,2015
|
Sales ($75/unit - 400 000 units) |
|
$30,000,000 |
|
Less Cost of Goods Sold ($55/unit) |
|
(22,000,000) |
|
Gross Profit |
|
8,000,000 |
|
Less: |
|
|
|
Selling expenses |
2,000,000 |
|
|
Admin expenses |
1,000,000 |
(3,000,000) |
|
Operating Income |
|
5,000,000 |
|
Cost per Unit |
||
|
Direct Material |
20 |
|
|
Direct Labour |
10 |
|
|
Variable OH cost |
15 |
|
|
Fixed OH cost |
10 |
|
|
Total |
55 |
|
In 2015, Blades produced 100,000 units more than it sold because sales were less than that expected.
Required:
- Prepare 2016 Income statement under absorption costing system
- Prepare variable income statement for 2015 and 2016
- Reconcile the differences and explain the effect.
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