Question

Tableau DA 6-3: Mini-Case, Income reporting under absorption costing and variable costing LO P2 Waltman Co. just ended its first year of operations. We are hired to help with the company's reporting. The Tableau Dashboard provides data for our analysis. Variable Manufacturing Costs $10 per unit Fixed Manufacturing Overhead $8 per unit $6 per unit ooooo $4 per unit Selling & Administrative Costs Per Year

Answer 1

1.
WALTMAN CO.
Income Statement (Variable Costing)
For Year Ended December 31
Sales		$750,000
Variable Costs of Goods Sold
Materials	$52,500
Labor	$67,500
Overheads	$30,000
Selling and Administrative Overheads	$85,000
Total Variable Expenses		$235,000
Gross Contribution		$515,000
Fixed Costs
Fixed Manufacturing Overheads	$100,000
Selling and Administrative Overheads	$45,000
Total Fixed Costs		$145,000
Net Income		$370,000
2.
WALTMAN CO.
Income Statement (Absorption Costing)
For Year Ended December 31
Sales		$750,000
Variable Costs of Goods Sold
Direct Materials	$52,500
Direct Labor	$67,500
Variable Overheads	$30,000
Fixed Manufacturing Overheads	$75,000
Total Variable Expenses		$225,000
Gross Contribution		$525,000
Variable Selling and Administrative Overheads	$85,000
Fixed Selling and Administrative Overheads	$45,000
Total Fixed Costs		$130,000
Net Income		$395,000
3.
Assuming that manager's bonus is based on net income,the managers would
prefer the absorption costing system because the net income under absorption
costing at $ 395,000 is higher than the income under variable costing which is
$ 370,000
4.
Assuming that the manager's bonus is based on minimizing the ending inventory,
the manager would choose the variable costing system because the ending
inventory at $ 50,000 would less than the ending inventory under absorption
costing system which would be $ 75,000
Working Notes
Computation of Unit Cost under absorption costing system
Direct Materials	$7
Direct Labor	$9
Variable Manufacturing Costs	$4
Fixed Manufacturing Costs	$10
Unit Cost of Production	$30
Fixed Manufacturing Cost per unit = Fixed Manufacting Cost / Units produced
Fixed Manufacturing Costs	$100,000
Units Produced	$10,000
Fixed Manufacturing Cost per unit	$10
Computation of Unit Cost under variable costing system
Direct Materials	$7
Direct Labor	$9
Variable Manufacturing Costs	$4
Unit Cost of Production	$20
Computation of Ending Inventory Cost	Variable Costing	Absorption Costing
Units in Ending Inventory	2,500	2,500
Cost per unit	$20	$30
Ending Inventory at Cost	$50,000	$75,000