(e) The net operating income (loss) under absorption costing is less than the net operating income (loss) under variable costing in Year 2 because: (You may select more than one answer. Single-click the box with the question mark to produce a checkmark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
Units were left over from the previous year.
The cost of goods sold is always less under variable costing than under absorption costing.
Sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing.
3. Make a note of the absorption costing net operating income (loss) in Year 2.
At the end of Year 1, the company’s board of directors set a target for Year 2 of net operating income of $180,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 5,600 units.
(a) Would this change result in a bonus being paid to the CEO?
Yes No
(b) What is the net operating income (loss) in Year 2 under absorption costing?
(c) Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,900 units per year?
Yes No
Homework Answers
| $ | ||||
| Selling price per unit | 298 | |||
| Manufacturing cost: | ||||
| Variable per unit produced : | ||||
| Direct Material | 123 | |||
| Direct Labour | 80 | |||
| Variable manufacturing overheads | 36 | |||
| Fixed Manufacturing overheads per year | 92,000 | |||
| Selling and administrative expenses: | ||||
| Variable per unit sold | 2 | |||
| Fixed per year | 55,000 | |||
| Compute the Ending Inventory | Year 1 | Year 2 | ||
| Units in beginning inventory (Equal to ending inventory of year 1) | - | 200 | ||
| Units produced during the year | 2,300 | 2,000 | ||
| Units sold during the year | 2,100 | 2,100 | ||
| Units in ending inventory (Beginning + Produced - Sold) | 200 | 100 | ||
| Compute the absorption Costing Unit Product Cost | Year 1 | Year 2 | ||
| Direct Materials | 123 | 123 | ||
| Direct Labour | 80 | 80 | ||
| Variable Manufacturig overheads | 36 | 36 | ||
| Fixed Manufacturing overheads ( 92000/2300 ) and (92000/2000) | 40 | 46 | ||
| Absorption Costing unit product cost | 279 | 285 | ||
| Absorption Costing unit product cost (If produced 5600) (123+80+36+ 92000/5600) | 255 | |||
| Income Statement under absorption Costing | Year 1 | Year 2 | ||
| Sales (Unit sold x selling price per unit) | 6,25,800 | 6,25,800 | working | |
| Cost of Goods Sold (Unit sold x absorption cost per unit) | 5,85,900 | 5,41,979 | (285*1900)+(279+200)=541979 | |
| Gross Margin | 39,900 | 83,821 | ||
| Selling & administrative expenses (Unit sold x per unit Variable S&A + Fixed S&A) | 59,200 | 59,200 | ||
| Net Operating Income | -19,300 | 24,621 | ||
| Compute the Variable Costing Unit Product Cost | Year 1 | Year 2 | ||
| Direct Materials | 123 | 123 | ||
| Direct Labour | 80 | 80 | ||
| Variable Manufacturig overheads | 36 | 36 | ||
| Variable Costing per unit product cost | 239 | 239 | ||
| Compute the Variable Costing Income Statement | ||||
| Year 1 | Year 2 | |||
| Sales (Unit sold x selling price per unit) | 6,25,800 | 6,25,800 | ||
| Variable Expenses: | ||||
| Variable Cost of Goods Sold (Unit sold x Variable costing per unit) | 5,01,900 | 5,01,900 | ||
| Variable Selling & Administrative Expenses (Unit sold x Variable S&A cost per unit) | 4,200 | 5,06,100 | 4,200 | 5,06,100 |
| Contribution Margin | 1,19,700 | 1,19,700 | ||
| Fixed Expenses: | ||||
| Fixed Manufacturing Overheads | 92,000 | 92,000 | ||
| Fixed Selling & Administrative expenses | 55,000 | 55,000 | ||
| Net Operating Income | -27,300 | -27,300 | ||
| (e ) All option are correct | ||||
| Income Statement under absorption Costing | Year 2 | |||
| Sales (2100 x 298) | 6,25,800 | |||
| Cost of Goods Sold ((255*1900)+(279+200)) | 5,40,300 | |||
| Gross Margin | 85,500 | |||
| Selling & administrative expenses (Unit sold x per unit Variable S&A + Fixed S&A) | 59,200 | |||
| Net Operating Income | 26,300 | |||
| As operating income is below $ 1,80,000 so bonus will not be paid | ||||
| (a) No | ||||
| (b) Net operating income is $ 26,300 in year 2 | ||||
| (c ) | ||||
| Income Statement under absorption Costing | Year 2 | |||
| Sales (2900 x 298) | 8,64,200 | |||
| Cost of Goods Sold ((255*2700)+(279+200)) | 7,44,300 | |||
| Gross Margin | 1,19,900 | |||
| Selling & administrative expenses (Unit sold 2900 x per unit Variable S&A + Fixed S&A) | 60,800 | |||
| Net Operating Income |
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(e)
The net operating income (loss) under absorption costing is less
than the net operating income (loss) under variable costing in Year
2 because (Select all that apply.):
3.
Make a note of the absorption costing net operating income
(loss) in Year 2.
At the end of Year 1, the company’s board of directors set a
target for Year 2 of net operating income of $70,000 under
absorption costing. If this target is met, a hefty bonus would...
A) What is the net operating income (loss) in Year 2
under absorption costing?
B) At the end of Year 1, the company’s board of
directors set a target for Year 2 of net operating income of
$20,000 under absorption costing. If this target is met, a hefty
bonus would be paid to the CEO of the company. Keeping everything
else the same from above, change the units produced in Year 2 to
4,400 units.
What is the net operating...
find net operating income (loss) for year 1 under absorption
costing
find net operating income (loss) for year 2 under absorption
costing
find net operating income (loss) for year 1 under variable
costing
find net operating income (loss) for year 2 under variable
costing
area of your worksheet so that it А B с Chapter 6: Applying Excel Data $ 344 $ 146 Selling price per unit Manufacturing costs: Variable per unit produced: Direct materials Direct labor Variable manufacturing overhead...
a. what is the net operating income (loss) in year 1 under
absorption costing?
b. what is the net operating income (loss) in year 2 under
absorption costing?
c. what is the net operating income (loss) in year 1 under
variable costing?
d. what is the net operating income (loss) in year 2 under
variablecosting?
2. Change all of the numbers in the data area of your worksheet so that it le А B С 1 Chapter 4: Applying Excel...
During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: $ Sales (@ $60 per unit) Cost of goods sold (@ $39 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $1,020,000 663,000 357,000 299,000 $ 58,000 Year 2 1,620,000 1,053,000 567,000 329,000 $ 238,000 *$3 per unit variable; $248,000 fixed each year. The company's $39 unit product cost is computed as follows: $ Direct materials Direct labor...
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: ear Sales ( $61 per unit) s 1,037,000 1,647,000 680,000 357,000 11080 Cost of goods sold e $40 per unit) 567,000 335,000 Gross margin Selling and administrative expenses305,000 Net operating income $152,000 232,000 $3 per unit variable; $254,000 fixed each year. The company's $40 unit product cost is computed as follows: Direet materials Direct labor Variable manufacturing overhead Pixed manufacturing overhead ($396,000 22,000...
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $60 per unit) Cost of goods sold (@ $40 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 1,080,000 720,000 360,000 302,000 $ 58,000 Year 2 $1,680,000 1,120,000 560,000 332,000 $ 228,000 *$3 per unit variable; $248,000 fixed each year. The company's $40 unit product cost is computed as follows: $ 8 13 Direct materials Direct...
During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $39 per unit) Year 1 945,500 604,500 Year 2 $ 1,555,500 9 94,500 Gross margin Selling and administrative expenses 341,099, 288,304 561.000 318,300 Net operating income $ 52,700 $ 242,700 * $3 per unit variable; $241,800 fixed each year, The company's $39 unit product cost is computed Direct materials Direct labor Variable...
During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@ $63 per unit) Cost of goods sold (@ $39 per unit) Gross margin Selling and administrative expenses Net operating income Year 1 $1,071,000 663,000 408,000 305,000 $ 103,000 Year 2 $ 1,701,000 1,053,000 648,000 335,000 $ 313,000 * $3 per unit variable; $254,000 fixed each year. The company's $39 unit product cost is computed as follows: Direct materials Direct labor...
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (e $63 per unit) Cost of goods sold ( 540 per unit) Gross margin Selling and administrative expenses Net operating income Year 1 $1,071,000 680,000 391.000 301.000 $ 190,0001 Year 2 $1,701,000 1,080,000 621,000 331,000 $ 290,000 ances *$3 per unit variable: $250,000 fixed each year. The company's $40 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing...