BUSINESS

Managerial Accounting 1B

Financial and Managerial Accounting

Chapter 19

1.

Exercise 19-1 Income reporting under absorption costing and variable costing L.O. P2

Adams Company, a manufacturer of in-home decorative fountains, began operations on September 1 of the current year. Its cost and sales information for this year follows.

 

       
  Production costs      
     Direct materials $ 40   per unit
     Direct labor $ 60   per unit
     Overhead costs for the year      
         Variable overhead $ 3,000,000  
         Fixed overhead $ 7,000,000  
  Nonproduction costs for the year      
     Variable selling and administrative $ 770,000  
     Fixed selling and administrative $ 4,250,000  
  Production and sales for the year      
     Units produced   100,000  units
     Units sold   70,000  units
     Sales price per unit $ 350  per unit

 

1. Prepare an income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

 

2. Prepare an income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

 

3. Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

 

 

Exercise 19-4 Income reporting under absorption costing and variable costing L.O. P2

[The following information applies to the questions displayed below.]

Woodson Company, a producer of solid oak tables, reports the following data from its current year operations, which is its second year of business.

 

       
  Sales price per unit $ 320  per unit
  Units produced this year   115,000  units
  Units sold this year   118,000  units
  Units in beginning-year inventory   3,000  units
  Beginning inventory costs      
       Variable (3,000 units × $135) $ 405,000  
       Fixed (3,000 units × $80)   240,000  
 


 
       Total $ 645,000  
  Production costs this year      
       Direct materials $ 40  per unit
       Direct labor $ 62  per unit
       Overhead costs this year      
           Variable overhead $ 3,220,000  
           Fixed overhead $ 7,400,000  
  Nonproduction costs this year      
       Variable selling and administrative $ 1,416,000  
       Fixed selling and administrative   4,600,000  

 

 

2.Exercise 19-4 Part 1

1. Prepare the current year income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

 

3.Exercise 19-4 Part 2

2. Prepare the current year income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

 

4.Exercise 19-6 Converting variable costing income to absorption costing income L.O. P2, P4

Lyon Furnaces prepares the income statement under variable costing for its managerial reports, and it prepares the income statement under absorption costing for external reporting. For its first month of operations, 375 furnaces were produced and 225 were sold; this left 150 furnaces in ending inventory. The income statement information under variable costing follows.

 

     
  Sales (225 × $1,600) $ 360,000
  Variable production cost (225 × $625)   140,625
  Variable selling and administrative expenses (225 × $65)   14,625
 


  Contribution margin   204,750
  Fixed overhead cost   56,250
  Fixed selling and administrative expense   75,000
 


  Net income $ 73,500
 





 

1. Prepare this company’s income statement for its first month of operations under absorption costing.(Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

 

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