Chapter 6, Problem 6SP

(This serial problem began in Chapter 1 and continues through most of the book. If previous chapter segments ware not completed, the serial problem can begin on this point it is helpful, but not necessary, to use the Working Papers that accompany the book. )

Santana Rey expects sales of her line of computer workstation furniture to equal 300 workstations (at a sales price of $3,000) for 2016. The workstations’ manufacturing costs include the following.

Direct materials………………………………..	$800 per unit
Direct labor………………………………………	$ 400 per unit
Variable overhead…………………………….	$100 per unit
Fixed overhead………………………………..	$24,000 per year

The selling expenses related to these workstations follow.

Variable selling expense………………………	$50 per unit
Fixed selling expense…………………………...	$4,000 per year

Santana is considering how many workstations to produce in 2016. She is confident that she will be able to sell any workstation in her 2016 ending inventory during 2017. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations.

Required

1. Compute Business Solutions’ absorption costing income assuming
2. 300 workstations are produced.
3. 329 workstations are produced.
4. Compute Business Solutions’s variable costing income assuming
5. 300 workstations are produced.
6. 320 workstations are produced.
7. Explain to Santana any difference in the income figures determined in parts 1 and 2. How should Santana use the information from parts 1 and 2 help make production decisions?