VeraCruz company had the following operating data for its first two years of ope
ID: 2385686 • Letter: V
Question
VeraCruz company had the following operating data for its first two years of operation:Variable costs per unit:
Direct materials $8
Direct Labor 4
Variable Overhead 1.5
Fixed Costs Per Year:
Overhead 90,000
Selling and admin 23,450
Veracruz produced 30,000 units in the first year and sold 25,000. INn the second year, it produced 25,000 units and sold 30,000 units. The selling price per unit each year was $21. Veracruz uses an actual costing system for product costing.
1.) Prepare income statement for both years using absorption costing. Has firm performance, as measured by income, improved or declined frm year 1 to year 2?
2.) Prepare income statement for both years using variable costing. Has firm performance, as measured by income, improved or declined frm year 1 to year 2?
3.) Which methid do you think most accurately measures firm performance? Why?
Explanation / Answer
total variable cost per unit is 8+4+1.5= 13.5 no of units produced per year 30000 total variable cost 30000*13.5=405000 fixed cost 113,450 total cost 518000 sales volume 525000 profit for first year is 7000 total vc for second year is 337500 total fixed cost for second year 113450 total cost is 550950 sales volume 630000 profit for second year 80050 the work in progress units are 5000 units
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