The Johnson Company uses an absorption-costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $3.00 per unit and other variable manufacturing costs of $1.40 per unit. The standard production rate is 10 units per machine-hour. Total budgeted and actual fixed manufacturing overhead costs are $480,000. Fixed manufacturing overhead is allocated at $8 per machine-hour based on fixed manufacturing costs of $480,000/60,000 machine-hours, which is the level Johnson uses as its denominator level. The selling price is $7 per unit. Variable operating (non- manufacturing) cost, which is driven by units sold, is $1 per unit. Fixed operating (non-manufacturing) costs are $55,000. Beginning inventory in 2022 is 40,000 units; ending inventory is 45,000 units. Sales in 2022 are 535,000 units. The same standard unit costs persisted throughout 2021 and 2022. For simplicity, assume that there are no price, spending, or efficiency variances. Requirement 1. Prepare an income statement for 2022 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. Complete the top half of the income statement first, and then complete the bottom portion. (Label the
The Johnson Company uses an absorption-costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $3.00 per unit and other variable manufacturing costs of $1.40 per unit. The standard production rate is 10 units per machine-hour. Total budgeted and actual fixed manufacturing overhead costs are $480,000. Fixed manufacturing overhead is allocated at $8 per machine-hour based on fixed manufacturing costs of $480,000/60,000 machine-hours, which is the level Johnson uses as its denominator level. The selling price is $7 per unit. Variable operating (non- manufacturing) cost, which is driven by units sold, is $1 per unit. Fixed operating (non-manufacturing) costs are $55,000. Beginning inventory in 2022 is 40,000 units; ending inventory is 45,000 units. Sales in 2022 are 535,000 units. The same standard unit costs persisted throughout 2021 and 2022. For simplicity, assume that there are no price, spending, or efficiency variances. Requirement 1. Prepare an income statement for 2022 assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods sold. Complete the top half of the income statement first, and then complete the bottom portion. (Label the
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:Problem 3:
Part 1
The Johnson Company uses an absorption-costing system based on standard costs. Variable
manufacturing cost consists of direct material cost of $3.00 per unit and other variable manufacturing
costs of $1.40 per unit. The standard production rate is 10 units per machine-hour. Total budgeted and
actual fixed manufacturing overhead costs are $480,000. Fixed manufacturing overhead is allocated at $8
per machine-hour based on fixed manufacturing costs of $480,000/60,000 machine-hours, which is the
level Johnson uses as its denominator level. The selling price is $7 per unit. Variable operating (non-
manufacturing) cost, which is driven by units sold, is $1 per unit. Fixed operating (non-manufacturing)
costs are $55,000. Beginning inventory in 2022 is 40,000 units; ending inventory is 45,000 units. Sales in
2022 are 535,000 units. The same standard unit costs persisted throughout 2021 and 2022. For
simplicity, assume that there are no price, spending, or efficiency variances.
Requirement 1. Prepare an income statement for
2022
assuming that the production-volume variance is written off at year-end as an adjustment to cost of goods
sold.
Complete the top half of the income statement first, and then complete the bottom portion. (Label the
variance as favourable (F) or unfavourable (U). Use parentheses or a minus sign for an operating loss.)
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