Question 1 The following information is available for quarters 1 to 4 for Solo Limited: Unit selling price $550 Unit variable cost $300 Quarter fixed manufacturing costs $60,000 The company produces only one product. Normal quarter activity is 500 units and production and sales for the four quarters are as follows. Units sold Units produced Quarter 1 500 500 Required: Quarter 2 400 500 Quarter 3 550 450 Quarter 4 450 500 There were no opening stocks at the start of quarter 1, and the actual fixed manufacturing costs incurred was $60,000 per quarter. It is also noted that the equation of selling and administrative expenses is $8,300 + 4% of sales per quarter. Allocation based for annual fixed manufacturing costs is on 2,000 units. a. Construct an income statement under absorption costing method for quarters 1 to 4. Construct an income statement under marginal costing method for quarters 1 to 4. b. c. Comment on the results of part a & b for the quarter 1, 2 and 3. You are required to reconcile the difference.
Question 1 The following information is available for quarters 1 to 4 for Solo Limited: Unit selling price $550 Unit variable cost $300 Quarter fixed manufacturing costs $60,000 The company produces only one product. Normal quarter activity is 500 units and production and sales for the four quarters are as follows. Units sold Units produced Quarter 1 500 500 Required: Quarter 2 400 500 Quarter 3 550 450 Quarter 4 450 500 There were no opening stocks at the start of quarter 1, and the actual fixed manufacturing costs incurred was $60,000 per quarter. It is also noted that the equation of selling and administrative expenses is $8,300 + 4% of sales per quarter. Allocation based for annual fixed manufacturing costs is on 2,000 units. a. Construct an income statement under absorption costing method for quarters 1 to 4. Construct an income statement under marginal costing method for quarters 1 to 4. b. c. Comment on the results of part a & b for the quarter 1, 2 and 3. You are required to reconcile the difference.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:Question 1
The following information is available for quarters 1 to 4 for Solo Limited:
Unit selling price
$550
Unit variable cost
$300
Quarter fixed manufacturing costs
$60,000
The company produces only one product. Normal quarter activity is 500 units and production and
sales for the four quarters are as follows.
Units sold
Units produced
Quarter 1
500
500
Required:
Quarter 2
400
500
Quarter 3
550
450
Quarter 4
450
500
There were no opening stocks at the start of quarter 1, and the actual fixed manufacturing costs incurred
was $60,000 per quarter. It is also noted that the equation of selling and administrative expenses is
$8,300 + 4% of sales per quarter. Allocation based for annual fixed manufacturing costs is on 2,000
units.
a. Construct an income statement under absorption costing method for quarters 1 to 4.
b. Construct an income statement under marginal costing method for quarters 1 to 4.
c. Comment on the results of part a & b for the quarter 1, 2 and 3. You are required to reconcile the
difference.
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Step 1: Introduction of Marginal and Absorption costing
VIEWStep 2: Determination of unit product cost under absorption costing and variable costing:
VIEWStep 3: Preparation of the absorption costing income statement
VIEWStep 4: Preparation of the variable costing income statement
VIEWStep 5: Reconciliation of Marginal and Absorption costing income statement
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