Miller Company eted its second year of operations. In Year 1, Miller Company produced 40,000 units and sold 35,000 units of its only product. In Year 2, the company sold 40,000 units, but increased production to 45,000 units. The company's variable production cost is $4.85 per unit, and its fixed manufacturing overhead cost is $660,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's units of production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2.10 per unit. Fixed selling and administrative expenses were $220,000 a year. The selling price per unit was $32 in both years. Required: a) Compute the unit product cost for each year under absorption costing and under variable costing. b) Prepare an income statement for each year, using the absorption format. c) Prepare an income statement for each year, using the contribution format with variable costing. d) Reconcile the variable costing and absorption costing income figures for each year.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Solve only part d.

Reconcile the variable costing and absorption costing income figures for each year.

Miller Company has just completed its second year of operations. In Year 1, Miller Company
produced 40,000 units and sold 35,000 units of its only product. In Year 2, the company sold 40,000
units, but increased production to 45,000 units.
The company's variable production cost is $4.85 per unit, and its fixed manufacturing
overhead cost is $660,000 a year. Fixed manufacturing overhead costs are applied to the
product on the basis of each year's units of production (i.e., a new fixed overhead rate is
computed each year). Variable selling and administrative expenses are $2.10 per unit. Fixed
selling and administrative expenses were $220,000 a year. The selling price per unit was $32
in both years.
Required:
a) Compute the unit product cost for each year under absorption costing and under variable
costing.
b) Prepare an income statement for each year, using the absorption format.
c) Prepare an income statement for each year, using the contribution format with variable
costing.
d) Reconcile the variable costing and absorption costing income figures for each year.
Transcribed Image Text:Miller Company has just completed its second year of operations. In Year 1, Miller Company produced 40,000 units and sold 35,000 units of its only product. In Year 2, the company sold 40,000 units, but increased production to 45,000 units. The company's variable production cost is $4.85 per unit, and its fixed manufacturing overhead cost is $660,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's units of production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2.10 per unit. Fixed selling and administrative expenses were $220,000 a year. The selling price per unit was $32 in both years. Required: a) Compute the unit product cost for each year under absorption costing and under variable costing. b) Prepare an income statement for each year, using the absorption format. c) Prepare an income statement for each year, using the contribution format with variable costing. d) Reconcile the variable costing and absorption costing income figures for each year.
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