1. ABC Company uses absorption costing in its GAAP financial statements and vari
ID: 2405070 • Letter: 1
Question
1. ABC Company uses absorption costing in its GAAP financial statements and variable costing for its internal management reporting. .ABC Company has produced 20,000 cell phone covers in 2016, but only sold 18,000 cell phone covers. ABC Company had no beginning inventory and now has ending inventory of 2,000 cell phone covers. Which of the following are true?
A. ABC Company will report higher income in its absorption income statement than in its variable income statement.
B. ABC Company will report lower income in its absorption income statement than in its variable income statement.
C. ABC Company will report the same income in its absorption and variable income statements.
D. There is not enough information to know how absorption and variable costing income will compare.
2. Budgeted sales in Allen Company are given below:
April
May
Budgeted Cash Sales
$50,000
$40,000
Budgeted Credit Sales
$130,000
$90,000
Total Budgeted Sales
$180,000
$120,000
Collections for sales on account follow a stable pattern as follows:
· 70% of a month's credit sales are collected in the month of sale and
· 30% are collected in the month following sale.
Given these data, the total of all collections for May should be:
A. $99,000
B. $107,000
C. $142,000
D. $178,000
3. XYZ Company sells goods to its customers on account and collects from customers evenly over 90 days. About 2% of the payments are written off as uncollectible each month. To forecast cash collections for its Cash Collections Budget for May, what information is needed?
A. The amount of sales expected in June
B. The amount of sales expected in March
C. The amount of production expected in June
D. The amount of production expected in March
4. ABC Company pays its suppliers for 60% of its purchases in the period of purchase and 40% in the following quarter. Accounts payable at the beginning of the year was $30,000.
Quarter 1, 2014
Quarter 2, 2014
Quarter 3, 2014
Quarter 4, 2014
Annual, 2014
Purchases on Account
$10,000
$20,000
$40,000
$100,000
$170,000
Based on the information above, what is the balance of accounts payable at the end of the year?
A. $40,000
B. $68,000
C. $58,000
D. $42,000
April
May
Budgeted Cash Sales
$50,000
$40,000
Budgeted Credit Sales
$130,000
$90,000
Total Budgeted Sales
$180,000
$120,000
Explanation / Answer
(1) Option A is correct
ABC Company will report higher income in its absorption income statement than in its variable income statement.
In absorption Income, Fixed cost in changing of Inventory also considered But in Variable costin FC in changes of Inventory should notbe considred.
In this case there is closing stock = 2000 & opening stock = NIL
Hence if FC is considered in 2000 closing stock
(2) Cash collection in May :-
Cash Sale
40000
Credit Sale of May , collected in May (90000 * 70%)
63000
Credit Sale of April, Collect in May (130000 * 30%)
39000
142000
Option C is correct
(3) Option B is correct
The amount of sales expected in March
XYZ Company sells goods to its customers on account and collects from customers evenly over 90 days
i.e if XYZ sold goods in March & collect cash for March sale over 90 Days then there is need to collect cash in May also
(4) Account Payable at the end of the year:-
40% of Quarter 4 sale
100000 * 40% = 40000
Option A is correct
Cash Sale
40000
Credit Sale of May , collected in May (90000 * 70%)
63000
Credit Sale of April, Collect in May (130000 * 30%)
39000
142000
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