P12.1 (LO 1, 2, 3), AP Business Writing Adrena is in her first year of work at an accounting services firm after earning her degree. She has become very comfortable preparing financial statements for many different companies that use standard costing within their absorption costing systems. However, one client now needs not only its usual absorption costing income statements but also financial statements for the same period pre- sented under variable costing. Adrena gathers the following information, noting there are no price or efficiency variances in either year. If there is a fixed-MOH volume variance, company policy is to write it off directly to COGS. Budgeted Information for Both Years Budgeted production Budgeted fixed manufacturing cost 60,000 units $360,000 Budgeted fixed operating expense $465,000 Budgeted variable operating expense $5 per unit Budgeted variable manufacturing cost $24 per unit Budgeted selling price $50 per unit Year 1 Year 2 Beginning FG Inventory units 2,000 Actual units produced 56,000 60,000 Sales volume 54,000 61,000 Required a. Prepare income statements for both years under the client's original absorption costing method. b. Prepare income statements for both years under the variable costing method. c. For Year 1, determine any difference in income between the two methods, and explain any difference. d. For Year 2, determine any difference in income between the two methods, and explain any difference.
P12.1 (LO 1, 2, 3), AP Business Writing Adrena is in her first year of work at an accounting services firm after earning her degree. She has become very comfortable preparing financial statements for many different companies that use standard costing within their absorption costing systems. However, one client now needs not only its usual absorption costing income statements but also financial statements for the same period pre- sented under variable costing. Adrena gathers the following information, noting there are no price or efficiency variances in either year. If there is a fixed-MOH volume variance, company policy is to write it off directly to COGS. Budgeted Information for Both Years Budgeted production Budgeted fixed manufacturing cost 60,000 units $360,000 Budgeted fixed operating expense $465,000 Budgeted variable operating expense $5 per unit Budgeted variable manufacturing cost $24 per unit Budgeted selling price $50 per unit Year 1 Year 2 Beginning FG Inventory units 2,000 Actual units produced 56,000 60,000 Sales volume 54,000 61,000 Required a. Prepare income statements for both years under the client's original absorption costing method. b. Prepare income statements for both years under the variable costing method. c. For Year 1, determine any difference in income between the two methods, and explain any difference. d. For Year 2, determine any difference in income between the two methods, and explain any difference.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:P12.1 (LO 1, 2, 3), AP Business Writing Adrena is in her first year of work at an accounting services firm
after earning her degree. She has become very comfortable preparing financial statements for many different
companies that use standard costing within their absorption costing systems. However, one client now needs
not only its usual absorption costing income statements but also financial statements for the same period pre-
sented under variable costing.
Adrena gathers the following information, noting there are no price or efficiency variances in either year.
If there is a fixed-MOH volume variance, company policy is to write it off directly to COGS.
Budgeted Information for Both Years
Budgeted production
Budgeted fixed manufacturing cost
Budgeted fixed operating expense
60,000 units
$360,000
$465,000
Budgeted variable operating expense
$5 per unit
$24 per unit
$50 per unit
Year 2
Budgeted variable manufacturing cost
Budgeted selling price
Year 1
Beginning FG Inventory units
2,000
Actual units produced
56,000
60,000
Sales volume
54,000
61,000
Required
a. Prepare income statements for both years under the client's original absorption costing method.
b. Prepare income statements for both years under the variable costing method.
c. For Year 1, determine any difference in income between the two methods, and explain any difference.
d. For Year 2, determine any difference in income between the two methods, and explain any difference.
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