(a) Prepare an absorption-costing income statement, with one column showing the
ID: 2433206 • Letter: #
Question
(a)
Prepare an absorption-costing income statement, with one column showing the results if 180,000 units are produced and one column showing the results if 250,000 units are produced.
Basic Electric Motors is a division of Basic Electric Products Corporation. The division manufactures and sells an electric switch used in a wide variety of applications. During the coming year, it expects to sell 180,000 units for $7 per unit. Ester Madden is the division manager. She is considering producing either 180,000 or 250,000 units during the period. Other information is as follows:Division Information for 2016 Beginning inventory 0 Expected sales in units 180,000 Selling price per unit $7 Variable manufacturing cost per unit $2.60 Fixed manufacturing cost (total) $450,000 Fixed manufacturing overhead costs per unit Based on 180,000 units $2.50 per unit ($450,000 ÷ 180,000) Based on 250,000 units $1.80 per unit ($450,000 ÷ 250,000) Manufacturing cost per unit Based on 180,000 units $5.10 per unit ($2.60 variable + $2.50 fixed) Based on 250,000 units $4.40 per unit ($2.60 variable + $1.80 fixed) Variable selling and administrative expenses $0.40 per unit Fixed selling and administrative expenses (total) $11,800
Explanation / Answer
BASIC ELECTRIC MOTORS Income Statement Absorption Costing 180,000 Units 250,000 Units Sales 180,000*$7 = $1,260,000 250,000*$7 = $1,750,000 Less: Cost of Goods Sold 180,000*($2.60+$2.50) = $918,000 250,000*($2.60+$1.80) = $1,100,000 Gross Margin $ 342,000 $ 650,000 Less: Selling and administrative expense Variable 180,000*$0.40 = $72,000 250,000*$0.40 = $100,000 Fixed $ 11,800 $ 11,800 Total selling and administrative expense $ 83,800 $ 111,800 Net income (loss) $ 258,200 $ 538,200
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.