Avant Designs designs two type of bracelets: Aztec and Mayan. The following data

Question

Avant Designs designs two type of bracelets: Aztec and Mayan. The following data summarize budgeted operations for current year:
                               Aztec                                    Mayan
Sales price/unit          $12                                       $15
Variable cost/unit        $4                                         $5
Units sold                    30,000                                    20,000
Machine minutes/unit     2                                            3
Begininning inventory      0                                             0
Ending inventory             3,000                                        1,000
-Budgeted fixed manufacturing overhead for the year was $258,000.
Required:
(a) Prepare the budgeted income statement for the year using variable costing and (b) Prepare the budgeted income statement for the year using absorption costing. Budgeted fixed manufacturing overhead is allocated to the two bracelets using machine minutes. (c)Explain differents between two net income figures computed in part (a) and (b).

Explanation / Answer

a. Budgeted Income Statement under variablecosting method Aztek Mayan Units sold 30000 20000 Sale price per unit 12 15 Variable cost per unit 4 5 Sales 360000 300000 Variable cost 120000 100000 Contribution 240000 200000 Fixed cost Net income b.Budgeted income Statement under absorbtion method Sales 360000 300000 Variable cost 120000 100000 240000 200000 Less:Fixed cost apportioned using machine hrs as basis 2:3 Aztek= 258000×2/5 103200 Mayan=258000×3/5 154800 Net income 136800 45200 c.The difference between two net income figures because: Fixed cost is not considered in variable costing method Fixed cost is considered in absorbtion method. a. Budgeted Income Statement under variablecosting method Aztek Mayan Units sold 30000 20000 Sale price per unit 12 15 Variable cost per unit 4 5 Sales 360000 300000 Variable cost 120000 100000 Contribution 240000 200000 Fixed cost Net income b.Budgeted income Statement under absorbtion method Sales 360000 300000 Variable cost 120000 100000 240000 200000 Less:Fixed cost apportioned using machine hrs as basis 2:3 Aztek= 258000×2/5 103200 Mayan=258000×3/5 154800 Net income 136800 45200 c.The difference between two net income figures because: Fixed cost is not considered in variable costing method Fixed cost is considered in absorbtion method.

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