Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement.       Sales price $ 90 per book Number of units produced   15,000 books Number of units sold   10,000 books Direct materials cost $ 15 per book Direct labor cost $ 6 per book Variable manufacturing overhead $ 4 per book Fixed manufacturing overhead $ 240,000 per month Selling cost   3 per book Administrative expenses $ 160,000 per month   The owners want to understand these numbers and how they can use the information to run the business.   Question 1: Define and explain absorption costing and variable costing. Question 2: Prepare the income statement for March using variable costing.   Brown Printing Sales   Variable cost of goods sold   Variable selling   Contribution margin   Fixed manufacturing overhead   Administrative expenses   Net income     Question 3: Calculate the unit cost of goods sold using absorption costing. Question 4: Prepare the income statement for March using absorption costing.   Brown Printing Sales revenue   Cost of goods sold   Gross margin   Selling expenses   Administrative expenses   Net Income     Question 5: Identify and describe two advantages of using variable costing. Question 6: Identify and describe two limitations of using absorption costing. Question 7: Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations.

Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter2: Basic Managerial Accounting Concepts
Section: Chapter Questions
Problem 33BEB: Use the following information for Brief Exercise: Morning Smiles Coffee Company manufactures...
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Brown Printing, a small family-owned business, began operations on March 1, manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company’s independent accountant compiled the following data for the month of March. They have also requested an income statement.

 

   
Sales price $ 90 per book
Number of units produced   15,000 books
Number of units sold   10,000 books
Direct materials cost $ 15 per book
Direct labor cost $ 6 per book
Variable manufacturing overhead $ 4 per book
Fixed manufacturing overhead $ 240,000 per month
Selling cost   3 per book
Administrative expenses $ 160,000 per month

 

The owners want to understand these numbers and how they can use the information to run the business.

 

Question 1: Define and explain absorption costing and variable costing.

Question 2: Prepare the income statement for March using variable costing.

 

Brown Printing
Sales  
Variable cost of goods sold  
Variable selling  
Contribution margin  
Fixed manufacturing overhead  
Administrative expenses  
Net income  

 

Question 3: Calculate the unit cost of goods sold using absorption costing.

Question 4: Prepare the income statement for March using absorption costing.

 

Brown Printing
Sales revenue  
Cost of goods sold  
Gross margin  
Selling expenses  
Administrative expenses  
Net Income  

 

Question 5: Identify and describe two advantages of using variable costing.

Question 6: Identify and describe two limitations of using absorption costing.

Question 7: Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations.

 

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