*P19-8A Dilithium Batteries is a division of Enterprise Corporation. The divisio
ID: 2552483 • Letter: #
Question
*P19-8A Dilithium Batteries is a division of Enterprise Corporation. The division manu- factures and sells a long-life battery used in a wide variety of applications. During the coming year, it expects to sell 60,000 units for $30 per unit. Nyota Uthura is the division manager. She is considering producing either 60,000 or 90,000 units during the period. Other information is presented in the schedule. Division Information for 2017 Beginning inventory Expected sales in units Selling price per unit Variable manufacturing costs per unit Fixed manufacturing overhead costs (total) Fixed manufacturing overhead costs per unit: 0 60,000 $30 $12 $540,000 $9 per unit ($540,000 ÷ 60, Based on 60,000 units Based on 90,000 units $6 per unit ($540,000+90,000) Manufacturing costs per unit: $21 per unit ($12 variable + $9 fixed) $18 per unit ($12 variable + $6 fixed) $2 $50,000 Based on 60,000 units Based on 90,000 units Variable selling and administrative expenses Fixed selling and administrative expenses (total) Instructions (a) Prepare an absorption costing income statement, with one column showing the re- sults if 60,000 units are produced and one column showing the results if 90,000 units are produced.Explanation / Answer
A) Absorption Costing Manufactured 60,000 90,000 Sales 1,800,000 (60000*30) 1800000 (60000*30) Cost of goods sold 1,260,000 (60000*21) 1,080,000 (60000*18) Gross Profit 540,000 720,000 Variable Selling & admin exp 120000 (60000*2) 120000 (60000*2) Fixed selling & Admin exp 50,000 50,000 Net Income 370,000 550,000 b) Variable Costing 60,000 90,000 Sales 1,800,000 (60000*30) 1800000 (60000*30) Variable manufacturing cost 720000 (60000*12) 720000 (60000*12) Variable selling & admin cost 120000 (60000*2) 120000 (60000*2) Total variable cost 840000 840000 Contribution Margin 960,000 960,000 Fixed manufacturing cost 540000 540000 Fixed selling & admin cost 50000 50000 Net profit 370,000 370,000 c) Net income under absorption costing 550,000 Less: Fixed manufacturing expenses carry forward 180000 (6*30000) Net profit under variable costing 370,000 So the difference in profit under both approach is on account of fixed manufacturing cost carry forwarded on account of unsold units left in closing stock. d) So Variable costing has certain advantages over absorbtion costing it is used in CVP analysis for decision makingn and also net profit under this methos is not affected by number of units produced.
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