Security Technology Inc. (STI) is a manufacturer of an electronic control system
ID: 2476358 • Letter: S
Question
Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture of certain special-duty auto transmissions used primarily for police and military applications. The part sells for $47 per unit and had sales of 24,900 units in the current year, 2015. STI has no inventory on hand at the beginning of 2015 and is projecting sales of 28,700 units in 2016. STI is planning the same production level for 2016 as in 2015, 26,800 units. The variable manufacturing costs for STI are $18 and the variable selling costs are only $0.90 per unit. The fixed manufacturing costs are $187,600 per year and the fixed selling costs are $680 per year.
Prepare a reconciliation and explanation of the difference each year in the operating income resulting from the full- and variable-costing methods. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your "Fixed overhead rate" answers to 2 decimal places, and other final answers to nearest whole dollar amount.)
Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture of certain special-duty auto transmissions used primarily for police and military applications. The part sells for $47 per unit and had sales of 24,900 units in the current year, 2015. STI has no inventory on hand at the beginning of 2015 and is projecting sales of 28,700 units in 2016. STI is planning the same production level for 2016 as in 2015, 26,800 units. The variable manufacturing costs for STI are $18 and the variable selling costs are only $0.90 per unit. The fixed manufacturing costs are $187,600 per year and the fixed selling costs are $680 per year.
Explanation / Answer
Unit Statement 2,015 2,016 Opening stock - 1,900 Production 26,800 26,800 Sales 24,900 28,700 Closing Stock 1,900 - Variable unit prodcution cost 18.00 18.00 Fixed manufacturing cost/unit produced= 7.00 7.00 Unit Cost Absorption costing 25.00 25.00 1 Security Technology Inc. Income Statement Absorption Costing format for the period ending Details Per unit 2,015 2,016 Sales Revenue 47 1,170,300 1,348,900 Cost of Production Opening stock at Full cost 25 - 47,500 Variable Manufacturing Overhead 18 482,400 482,400 Fixed Manufacturing Overhead 7 187,600 187,600 Less: Closing Stock at Full cost 25 (47,500) - Cost Of Goods Sold 622,500 717,500 Gross Profit 547,800 631,400 Selling & Admin Expenses 23,090 26,510 Net Operating Income 524,710 604,890 2 Security Technology Inc. Income Statement Contribution Margin Format for the period ending 2015 2,016 Details Amt $/Unit Total Amt $ Total Amt $ Sales Revenue 47 1,170,300 1,348,900 Less Variable costs of Goods Opening Inventory at Variable cost 18 - 34,200 Variable cost 18 482,400 482,400 Less : Closing Stock at Variable cost 18 (34,200) - Variable cost of Goods Sold 448,200 516,600 Add Variable Selling & Admin Cost 0.9 22,410 25,830 Total Variable cost of Sales 470,610 542,430 Contribution Margin 699,690 806,470 Less Fixed costs Fixed Manufacturing Overhead 187,600 187,600 Fixed Selling & Admin Costs 680 680 Total Fixed Costs 188,280 188,280 Net Operating Income 511,410 618,190 3 Reconciliation of net operating profit 2,015 2,016 Net Operating Income Absorption Costing 524,710 604,890 Net Operating Income Variable costing 511,410 618,190 Difference 13,300 (13,300) Closing Stock-Opening Stock 1,900 (1,900) Fixed manufacturing OH per unit inventory= 7 7 Fixed Manufacturing OH carried forward by closing inventory 13,300 (13,300) Net Op Income less Fixed OH carry forward by closing inventory - -
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