FINANCE

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  

 

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