During Durton Company's first two years of operations, the company reported variable costing operating income as shown below. Production and cost data for the two years are given: Units produced Units sold Year 1 25,000 20,000 Sales (at $50 per unit) Variable expenses: Variable cost of goods sold (at $20 per unit) Variable selling and administrative costs (at $3 per unit) Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Total fixed expenses Operating income (loss) Direct materials Direct labour Year 2 25,000 30,000 The company's $20 unit product cost is computed as follows: Variable manufacturing overhead Unit product cost 58 10 2 $20 - Year 1 $1,000,000 400,000 60,000 460,000 540,000 350,000 250,000 600,000 $ (60,000) Year 2 $1,500,000 $ 600,000 90,000 690,000 810,000 350,000 250,000 600,000 210,000
During Durton Company's first two years of operations, the company reported variable costing operating income as shown below. Production and cost data for the two years are given: Units produced Units sold Year 1 25,000 20,000 Sales (at $50 per unit) Variable expenses: Variable cost of goods sold (at $20 per unit) Variable selling and administrative costs (at $3 per unit) Total variable expenses Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Total fixed expenses Operating income (loss) Direct materials Direct labour Year 2 25,000 30,000 The company's $20 unit product cost is computed as follows: Variable manufacturing overhead Unit product cost 58 10 2 $20 - Year 1 $1,000,000 400,000 60,000 460,000 540,000 350,000 250,000 600,000 $ (60,000) Year 2 $1,500,000 $ 600,000 90,000 690,000 810,000 350,000 250,000 600,000 210,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Required:
1. Prepare an absorption costing income statement for each year.
Cost of goods sold:
Cost of goods sold
Absorption Costing Income Statements
Year 1
Year 2
2. Reconcile the absorption costing and variable costing operating income figures for each year. (Loss amounts should be indicated
by a minus sign.)
Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing operating income (loss)
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing
Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing
Absorption costing operating income (loss)
Year 1
Year 2
Transcribed Image Text:During Durton Company's first two years of operations, the company reported variable costing operating income as shown below.
Production and cost data for the two years are given:
Units produced
Units sold
Sales (at $50 per unit)
Variable expenses:
Variable cost of goods sold (at $20 per unit)
Variable selling and administrative costs (at $3 per unit)
Total variable expenses
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
Fixed selling and administrative
Total fixed expenses
Operating income (loss)
Year 1
25,000
20,000
Direct materials
Direct labour
The company's $20 unit product cost is computed as follows:
Variable manufacturing overhead
Unit product cost
Year 2
25,000
30,000
Requina d
$8
10
2
$20
Year 1
$1,000,000
400,000
60,000
460,000
540,000
350,000
250,000
600,000
$ (60,000)
Year 2
$1,500,000
600,000
90,000
690,000
810,000
350,000
250,000
600,000
$ 210,000
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