Adria Lopez expected sales of her line of computer workstation furniture to equa
ID: 2423971 • Letter: A
Question
Adria Lopez expected sales of her line of computer workstation furniture to equal 300 workstations (at a sales price of $3,200) for 2014. The workstations' manufacturing costs include the following.
per year
The selling expenses related to these workstations follow.
Adria is considering how many workstations to produce in 2014. She is confident that she will be able to sell any workstations in her 2014 ending inventory during 2015. However, Adria does not want to overproduce as she does not have sufficient storage space for many more workstations.
Complete the following income statements using absorption costing.
Cost of Goods Sold:
SUCCESS SYSTEMS
Absorption Costing Income Statements
Complete the following income statements using variable costing.
Adria Lopez expected sales of her line of computer workstation furniture to equal 300 workstations (at a sales price of $3,200) for 2014. The workstations' manufacturing costs include the following.
Direct materials $ 760 per unit Direct labor $ 390 per unit Variable overhead $ 70 per unit Fixed overhead $ 24,000per year
The selling expenses related to these workstations follow.
Variable selling expenses $ 35 per unit Fixed selling expenses $ 3,400 per yearAdria is considering how many workstations to produce in 2014. She is confident that she will be able to sell any workstations in her 2014 ending inventory during 2015. However, Adria does not want to overproduce as she does not have sufficient storage space for many more workstations.
Required: 1.Complete the following income statements using absorption costing.
Production VolumeCost of Goods Sold:
300 Workstations 320 Workstations Cost of goods sold per unit Number of workstations sold Total cost of goods soldSUCCESS SYSTEMS
Absorption Costing Income Statements
Production Volume Sales Volume - 300 Workstations 300 Workstations 320 Workstations 0 0 $0 $0 Under absorption costing, can the difference between production volume and sales volume affect the reported net income (loss)? 2.Complete the following income statements using variable costing.
SUCCESS SYSTEMS Variable Costing Income Statements Production volume (units) 300 Workstations 320 Workstations Sales volume (units) 300 Workstations 300 Workstations Sales 0 0 Net income (loss) $0 $0 Under variable costing, can a company increase its net income by increasing production?Explanation / Answer
Yes. Under absorption costing, the difference between production volume and sales volume can affect the reported net income (loss), because a portion of the fixed overhead gets absorbed in the cost of finished goods and carried forward to the next accounting period. Due to this reason the net income for the production volume of 320 units is greater than when 300 workstations were produced and sold.
2)
No. Under absorption costing the closing stock is valued at variable cost only and the entire fixed cost is charged as the periodic cost against the sales. So the more the sales the more will be the income. The number of units produced do not impact the net income. This has been illustrated in the above calculation also.
Cost of goods sold Production Volume (units) 300 320 Direct material $300 $300 direct labour 390 390 manufacturing overhead: Variable 70 70 Fixed 80 75 cost of goods sold Per unit 840 835 Number of workstations sold 300 300 Number of workstations sold $252000 $250500Related Questions
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