Duif Company\'s absorption costing income statements for the last two years are
ID: 2459589 • Letter: D
Question
Duif Company's absorption costing income statements for the
last two years are presented below:
Sales...
Cost of goods sold:
Beginning inventory..
Cost of goods manufactured..
Goods available for sale..
Ending inventory..
Cost of goods sold..
Gross margin..
Selling & admin. Expenses..
Net income..
Year 1
$70,000
- 0 -
48 000
48,000
6 000
42 000
28,000
25 000
$3,000
Year 2
$90,000
6,000
48 000
54,000
- 0 -
54 000
36,000
31 000
$5,000
Data on units produced and units sold in each of these years are
Given below:
Units in beginning inventory..
Units produced..
Units sold..
Year 1
-0-
8,000
7,000
Year 2
1,000
8,000
9,000
Fixed factory overhead totaled $16,000 in each year. This overhead
was applied to products at a rate of $2 per unit. Variable selling
and administrative expenses were $3 per unit sold.
Required:
a. Compute the unit product cost in each year under variable costing.
b. Prepare new income statements for each year using variable costing.
c. Reconcile the absorption costing and variable costing net income
for each year.
Explanation / Answer
a. the unit product cost in each year under variable costing:
Cost of goods sold per unit - Fixed Overhed per unit = (42000 / 7000) - (16000 / 8000) =6 -2 = $4 per unit per year
b. new income statements for each year using variable costing:
c. the absorption costing and variable costing net income for each year:
Total cost by aborption costing $67000 $85000
Total cost by variable costing $69000 $83000
cost difference ($2000) $2000
Net Income by aborption costing $3000 $5000
Net Income by variable costing $1000 $7000
Year 1 (sold units : 7000) Year 2 (sold units : 9000) Sales 70000 90000 Variable costs: production 28000 36000 selling and administrative 21000 27000 Total Variable costs 49000 63000 Contribution 21000 27000 Less: Fixed costs: Production 16000 16000 Selling and Administrative 4000 4000 Total Fixed Costs 20000 20000 Net Income $1000 $7000Related Questions
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