Question

Santana Rey expects sales of Business Solutions's line of computer workstation furniture to equal 300 workstations (at a sales price of $3,700 each) for 2018. The workstations' manufacturing costs include the following Direct materials Direct labor Variable overhead Fixed overhead $780 per unit $ 350 per unit 70 per unit $19,200 per year The selling expenses related to these workstations follow Variable selling expenses Fixed selling expenses S40 per unit $3,500 per year Santana is considering how many workstations to produce in 2018. She is confident that she will be able to sell any workstations in her 2018 ending inventory during 2019. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations Required 1. Complete the following income statements using absorption costing Production volume 300 320 Cost of goods sold workstations workstations Cost of goods sold per unit Number of workstations sold Total cost of goods sold

Answer 1

	Business Solutions
	Cost of Goods Sold
		300 Workstation	320 Workstation			300 Workstation	320 Workstation
	Direct Material	780.00	780.00		Fixed OH Total	19200	19200
	Direct Labor	350.00	350.00		Fixed OH PU	64.00	60.00
	Variable OH	70.00	70.00
	Fixed OH	64.00	60.00
	Cost of Goods Sold PU	1,264.00	1,260.00
	Number of Workstation Sold	300	300
	Total Cost of Goods Sold	379200	378000
	Business Solutions
	Absorption Costing Income Statement
		Production Volume
	Sales Volume- 300 Workstation	300 Workstation	320 Workstation
	Revenue	1,110,000	1,110,000
	Less: Cost of Goods Sold	379,200	378,000
	Less: Variable Selling Expense	12,000	12,000
	Gross Contribution	718,800	720,000
	Less: Fixed Selling Expense	3500	3500
	Net Operating Income	715,300	716,500
	Yes, Since Fixed OH Cost is Booked Basis the Sales Volume
	Business Solutions
	Variable Costing Income Statement
		Production Volume
	Sales Volume- 300 Workstation	300 Workstation	320 Workstation
	Revenue	1,110,000	1,110,000
	Less: Variable Cost of Goods Sold
	Direct Material	234000	234000
	Direct Labor	105000	105000
	Variable OH	21000	21000
	Less: Variable Selling Expense	12,000	12,000
	Gross Contribution	738,000	738,000
	Less: Period Costs
	Fixed OH	19200	19200
	Fixed Selling	3500	3500
	Net Operating Income	715,300	715,300
	No, Since All Variable Costs are Booked basis Sales Units and Total Fixed Cost is charged to PL Irrespective of Sales Volume