5. Siren Company builds custom fishing lures for sporting goods stores. Their co

Question

5. Siren Company builds custom fishing lures for sporting goods stores. Their costs in 2017 were as follows Variable Costs Per Unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative costs S7.50 S3.45 S5.80 S3.90 Fixed Costs per Year: Fixed manufacturing overhead Fixed selling and administrative costs S225,000 S210,000 Siren Company sells the fishing lures for $35 each. Instructions For each of the following cases, (1) prepare a variable costing income statement; (2) prepare an absorption costing income statement; and (3) explain the difference in the results a. If 90,000 lures are produced and 90,000 lures are sold. b. If 90,000 lures are produced and 80,000 lures are sold. c. If 90,000 lures are produced and 105,000 lures are sold

Explanation / Answer

Construct The Absorption Costing Unit Product Cost Direct Material 7.50 Direct labour 3.45 Variable Manufacturing overheads 5.80 Fixed Manufacturing overheads 2.50 Absorption costing unit prroduct cost 19.25 Case-A Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $3,150,000 Cost of Goods sold 1732500 Gross Margin $1,417,500 Selling and distribution expense 561,000 Net operating income 856,500 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 3,150,000 Less: Variable cost    variable cost of goods sold 1,507,500    Variable selling expense 351,000 1,858,500 Contribution margin 1,291,500 Fixed expense:    Fixed Manufacturing overheads 225,000    Fixed selling expense 210,000 Net operating Income 856,500 No difference case-B Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $2,800,000 Cost of Goods sold 1540000 Gross Margin $1,260,000 Selling and distribution expense 522,000 Net operating income 738,000 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 2,800,000 Less: Variable cost    variable cost of goods sold 1,340,000    Variable selling expense 312,000 1,652,000 Contribution margin 1,148,000 Fixed expense:    Fixed Manufacturing overheads 225,000    Fixed selling expense 210,000 Net operating Income 713,000 Reconciliation: Net Income as per Variable cost 713000 Add: Fixed oH deferred in Ending (10000*2.50) 25000 Net income as per Absorption costing 738000 Case-C Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $3,675,000 Cost of Goods sold 2021250 Gross Margin $1,653,750 Selling and distribution expense 619,500 Net operating income 1,034,250 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 3,675,000 Less: Variable cost    variable cost of goods sold 1,758,750    Variable selling expense 409,500 2,168,250 Contribution margin 1,506,750 Fixed expense:    Fixed Manufacturing overheads 225,000    Fixed selling expense 210,000 Net operating Income 1,071,750 Reconciliation: Net Income as per Variable cost 1071750 Less: Fixed oH released in Inventory (15000*2.50) 37500 Net income as per Absorption costing 1034250

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