Helen Martin, CEO of Ivanhoe Industries, is concerned about the recent volatility in the company's operating income. She believes that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable. Helen asked Donald Robinson, Ivanhoe's inventory manager, to help her understand the issue. Donald reviewed the company's records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019, 2020, and 2021. Beginning inventory Production Sales Ending inventory Sales 2019 1,000 Total cost of goods sold Gross margin Selling expense Operating Income 40,000 (39,000) Sales Income Statement-Absorption Costing 2,000 Operating income Cost of goods sold Units in beginning inventory Units sold from current year production Income Statement-Variable Costing Variable production expenses Variable selling expenses Contribution margin Fixed manufacturing expenses Fixed selling expenses Year 2020 38,000 (39,500) 2,000 Donald also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow. 500 2021 500 40,000 (39,500) 1,000 $ 5,460,000 (93,000) (3,534,000) (3,627,000) 1,833,000 (605,000) $ 1,228,000 $ 5,460,000 (2,145,000) (156,000) 3,159,000 (1,520,000) (449,000) $ 1,190,000
Helen Martin, CEO of Ivanhoe Industries, is concerned about the recent volatility in the company's operating income. She believes that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable. Helen asked Donald Robinson, Ivanhoe's inventory manager, to help her understand the issue. Donald reviewed the company's records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019, 2020, and 2021. Beginning inventory Production Sales Ending inventory Sales 2019 1,000 Total cost of goods sold Gross margin Selling expense Operating Income 40,000 (39,000) Sales Income Statement-Absorption Costing 2,000 Operating income Cost of goods sold Units in beginning inventory Units sold from current year production Income Statement-Variable Costing Variable production expenses Variable selling expenses Contribution margin Fixed manufacturing expenses Fixed selling expenses Year 2020 38,000 (39,500) 2,000 Donald also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow. 500 2021 500 40,000 (39,500) 1,000 $ 5,460,000 (93,000) (3,534,000) (3,627,000) 1,833,000 (605,000) $ 1,228,000 $ 5,460,000 (2,145,000) (156,000) 3,159,000 (1,520,000) (449,000) $ 1,190,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Helen Martin, CEO of Ivanhoe Industries, is concerned about the recent volatility in the company's operating income. She believes
that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable.
Helen asked Donald Robinson, Ivanhoe's inventory manager, to help her understand the issue.
Donald reviewed the company's records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019,
2020, and 2021.
Beginning inventory
Production
Sales
Ending inventory
Sales
2019
1,000
40,000
(39,000)
Total cost of goods sold
Gross margin
Selling expense
Operating Income
2,000
Income Statement-Absorption Costing
Contribution margin
Cost of goods sold
Units in beginning inventory
Units sold from current year production
Income Statement-Variable Costing
Sales
Variable production expenses
Variable selling expenses
Year
Fixed manufacturing expenses
Fixed selling expenses
Operating income
2020
2,000
38,000
(39,500)
Donald also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow.
500
2021
500
40,000
(39,500)
1,000
$ 5,460,000
(93,000)
(3,534,000)
(3,627,000)
1,833,000
(605,000)
$ 1,228,000
$ 5,460,000
(2,145,000)
(156,000)
3,159,000
(1,520,000)
(449,000)
$ 1,190,000
Transcribed Image Text:Unit product cost using
variable costing
Unit product cost using
absorption costing
Income Statement-Absorption Costing
Sales
Cost of goods sold
Gross margin
Variable costs-selling
Fixed selling costs
Operating Income
Sales
Income Statement-Variable Costing
Variable costs-production
Variable costs-selling
Contribution margin
Fixed selling costs
$
Prepare variable and absorption costing income statements for 2020 and 2021. Assume that sales price remains constant across
all years. (Round answers to 0 decimal places, e.g. 5,275.)
Fixed manufacturing costs
v
Operating Income
$
$
$
2019
$
2020
55
93
2020
449000
449000
$
1520000
$
2020
2021
55
95
2021
449000
449000
$
1520000
$
2021
55
93
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