Question

Problem 2. Answer all parts and provide supporting calculations that are clearly labeled. Sally's Ski Boot Inc, manufactures ski boots. The following information is from the first year of operations: Sales Price Number manufactured Number sold $490 per pair 22,000 pairs 18,000 pairs Total fixed manufacturing OH costs Total fixed Selling and Admin Costs $1,219,900 $ 800,000 Direct materials Direct Labor Variable manufacturing OH cost Variable Selling and Admin cost $125.00 per pair $85.00 per pair $ 27.00 per pair $ 42.00 per pair Required: 1. Prepare an income statement under absorption costing for the first year. 2. Prepare an income statement under variable costing for the first year. 3. Explain why your answer in part 1 is different from your answer in part 2 Be specific and provide supporting calculations that are labeled. Be sure to incorporate the impact to the balance account as well as income statement account (finished foods inventory and COGS). 4. Which method, absorption or variable costing, is more informative to management in the short-term and why?

Answer 1

of 1 problem-2 Income 0 statement indes absorption costing for the 1st Year. (int) sales (A) 18000 Pairs x1490 per pair) 88,20000 lessi Castof gads gole :(8) ve Direct nateral. This i s (22000 Poirs x$ 125 petang 27,50.00 Direcf Labaer C22000 pairs y$ 85 18,750 REGALORS variable manufacturing overhead .. ( 220vo pairs x$ 273 fixed Manufacturing overhead 594000 1219900 33900 Cost of Goods Solo Selling expenses ; variable ( 180290 Veios x42 Perpaint 756 020: fixed 800 ODD a si Total of (B), -77989.900 actual posfit under absorption costing 8.30 loo CA-B) la mess and Vervicebole. . girect material ② come statement under Marginal costing for the 1st year, sales (A) (18000 Paios X $490 per pairs) 1 88 20,000 tos: cost of Gads sold : L. 24,58OBO direct labair I 18,70,000 vagiable overhead Cranufactured 594 000 variable cost of posluction of 18000 pairs) 5214000 Add variable Selling expertes (18020 X 42) 757000 risiable coff (B) 59 Toom contordbution (sales-horiable cost (A-B) 2859000 less: fixed cost production / 1219900 800 D Selling expenses 2019900 Actual profit under variable costing 83010

3- Actered Proht onder absorption costing is equal do actual profit under marginal Casting . But alatys prefers absorption costing to The main advantage of absoṛgton Costing is that it is compliance with GAAP & does a better w Job of accurately fricting profits than variable costing .. , The absorption costing method is always used for Prepasing financial accounts. 17. Shoof term as organisation is required to ne many decisions to profit .. manemise The best use of existing capacity must be made to do so. In short term fixed costs remain fame & decisions should be made in the basis of contribution a In this situation, Marginal costing technique is used extensive layers to he so, Management is more informative in the short-terin on the basis of marginal / variable Costing.