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Prepare an absorption costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 35,000 units are produced. Why is income different for the two production levels when sales is 30,000 units either way?

Prepare an absorption costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 35,000 units are produced. Why is income different for the two production levels when sales is 30,000 units either way?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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TUTORIAL TOPIC 5 (Part B) Question 1 Graham is a division of Flynn, Inc. The division manufactures and sells a pump that is used in a wide variety of applications. During the coming year, it expects to sell 30,000 units for $25 per unit. Steve Moss, division manager, is considering producing either 30,000 or 35,000 units during the period. Other information is presented in the schedule below: Division Information - 2016 Beginning inventory Expected sales in units Selling price per unit Variable manufacturing cost per unit Fixed manufacturing overhead costs (total) Fixed manufacturing overhead costs per unit Based on 30,000 units ($420,000 + 30,000) Based on 35,000 units ($420,000 + 35,000) Manufacturing cost per unit Based on 30,000 units ($7 variable + $14 fixed) Based on 35,000 units ($7 variable + $12 fixed) Selling and administrative expenses (all fixed) 0 30,000 $25 $7 $420,000 $14 $12 $21 $19 $25,000 Instructions (a) Prepare an absorption costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 35,000 units are produced. (b) Why is income different for the two production levels when sales is 30,000 units either way?
Transcribed Image Text:TUTORIAL TOPIC 5 (Part B) Question 1 Graham is a division of Flynn, Inc. The division manufactures and sells a pump that is used in a wide variety of applications. During the coming year, it expects to sell 30,000 units for $25 per unit. Steve Moss, division manager, is considering producing either 30,000 or 35,000 units during the period. Other information is presented in the schedule below: Division Information - 2016 Beginning inventory Expected sales in units Selling price per unit Variable manufacturing cost per unit Fixed manufacturing overhead costs (total) Fixed manufacturing overhead costs per unit Based on 30,000 units ($420,000 + 30,000) Based on 35,000 units ($420,000 + 35,000) Manufacturing cost per unit Based on 30,000 units ($7 variable + $14 fixed) Based on 35,000 units ($7 variable + $12 fixed) Selling and administrative expenses (all fixed) 0 30,000 $25 $7 $420,000 $14 $12 $21 $19 $25,000 Instructions (a) Prepare an absorption costing income statement with one column showing the results if 30,000 units are produced and one column showing the results if 35,000 units are produced. (b) Why is income different for the two production levels when sales is 30,000 units either way?
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