Sanjog and Rajiv Gupta have started a business that manufactures and sells thermal mugs. Users personalize the mugs by plugging them into a laptop and downloading their favorite images from a digital camera. The company makes two mug sizes: 16 and 24 ounce mugs. This is its first year of business. The following data summarize operations for the first year.
| 16 oz. mug | 24 oz. mug | Total | |
| Selling price | $9.75 | $11.20 | |
| Direct materials/unit | $1.10 | $1.45 | |
| Direct labor/unit | $0.60 | $0.80 | |
| Variable overhead/unit | $0.30 | $0.40 | |
| Variable selling and distribution/unit | $1.65 | $1.75 | |
| Units sold | 22,500 | 16,400 | |
| Units produced | 24,000 | 16,400 | |
| Fixed manufacturing overhead | $85,000 | ||
| Fixed selling and distribution | $148,000 |
There were no beginning inventories. Overhead is assigned to products using direct labor dollars.
Required:
a. Calculate Mystic Mugs’s net income before taxes using absorption costing.
b. Calculate Mystic Mugs’s net income before taxes using variable costing.
c. Prepare a table that reconciles any difference between the two net income figures calculated in parts (a) and (b).
d. Write a short memo explaining in lay terms any difference between the two net income figures calculated in parts (a) and (b).
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.