Alice Bohne obtained a patent on a small electronic device and organized Bohne P

Question

Alice Bohne obtained a patent on a small electronic device and organized Bohne Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Bohne looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement. This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data. The statement follows Bohne Products, Inc. Income Statement Sales (21,000 units) Variable expenses $ 989,100 $ 329,700 Variable cost of goods sold Variable selling and administrative expenses 197,820 527,520 461,580 Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses 223,200 291,000 514,200 Net operating loss $ (52,620) Ms. Bohne is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month. Selected cost data relating to the product and to the first month of operations follow: Units produced Units sold Variable costs per unit: 24,000 21,000 Direct materials Direct labor Variable manufacturing overhead $ 8.60 $ 4.20 $ 2.90 Variable selling and administrative expenses $9.42

Explanation / Answer

Answer 1-a Answer 2-a Computation unit product cost under absorption costing Bohne Products Inc. Per Unit Variable Costing Income Statement Direct Material $8.60 Sales [27000 units * $47.10] $1,271,700.00 Direct Labour $4.20 Variable Expenses Variable manufacturing overhead $2.90 - Variable cost of goods sold [27000 units*$15.70] $423,900.00 Fixed Mnaufacturing overhead ($223200/24000 units produced) $9.30 - Variable selling and administrative exp. $254,340.00 $678,240.00 Unit Product Cost $25.00 Contribution Margin $593,460.00 Fixed Expenses : Answer 1-b Fixed Manufacturing Overheads $223,200.00 Company's Income statement using absorption costing Fixed Selling and administrative expenses $291,000.00 $514,200.00 Bohne Products Inc. Net Operating Income (loss) $79,260.00 Absorption Costing Income Statement Sales $989,100.00 Answer 2-b Less : Cost of goods sold [21000 * $25] $525,000.00 Company's Income statement using absorption costing Gross Margin $464,100.00 Bohne Products Inc. Less : Selling and administrative expenses Absorption Costing Income Statement - Fixed $291,000.00 Sales [27000 units * $47.10] $1,271,700.00 - Variable $197,820.00 Less : Cost of goods sold [27000 * $25] $675,000.00 Net Operating Income / (loss) -$24,720.00 Gross Margin $596,700.00 Less : Selling and administrative expenses Answer 1-c - Fixed $291,000.00 Bohne Products Inc. - Variable $254,340.00 Reconciliation of variable and absorption costing net operating income (loss) Net Operating Income / (loss) $51,360.00 Variable Costing net operating income (loss) -$52,620.00 Add : Fixed manufacturing overhead component included in ending inventory [3000 units * $9.30] $27,900.00 Answer 2-c Absorption costing net operating income (loss) -$24,720.00 Bohne Products Inc. Reconciliation of variable and absorption costing net operating income (loss) Variable Costing net operating income (loss) $79,260.00 Less : Fixed manufacturing overhead component included in beginning inventory [3000 units * $9.30] $27,900.00 Absorption costing net operating income (loss) $51,360.00

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.