Please show all work 5. The following data relate to KATZEN Sales Inc., a new co

Question

Please show all work 5. The following data relate to KATZEN Sales Inc., a new company:

Planned and actual production

200,000 units

Sales at $45 per unit

180,000 units

Manufacturing costs:

Variable

$18 per unit

Fixed

$800,000

Selling and administrative costs:

Variable

$6 per unit

Fixed

$925,000

Required: A. Determine the number of units in the ending finished-goods inventory B. Calculate the cost of the ending finished-goods inventory using variable costing C. Calculate the cost of the ending finished-goods inventory using absorption costing D The difference between net income using variable costing & absorption costing is _______ E. Determine the company's variable-costing net income. G. Determine the company's absorption-costing net income. H. Explain the difference in net income amounts. Support your explanation with a reconciliation.

Planned and actual production

200,000 units

Sales at $45 per unit

180,000 units

Manufacturing costs:

Variable

$18 per unit

Fixed

$800,000

Selling and administrative costs:

Variable

$6 per unit

Fixed

$925,000

Explanation / Answer

Answer A The number of units in the ending finished-goods inventory = Units produced - Units sold = 200000 - 180000 = 20000 units Answer B Cost of the ending finished-goods inventory using variable costing = Ending inventory units * Variable cost per unit Cost of the ending finished-goods inventory using variable costing = 20000 units * $18 = $3,60,000 Answer C Cost of the ending finished-goods inventory using absorption costing = Ending inventory units * [Variable cost per unit + Fixed cost per unit] Fixed cost per unit = Fixed manufacturing cost / Production Units = $800000 / 200000 units = $4 per unit Cost of the ending finished-goods inventory using absorption costing = 20000 units * [$18 + $4] = $4,40,000 Answer D The difference between net income using variable costing & absorption costing = Cost of ending inventory using Absorption costing - Cost of ending variable using Absorption costing The difference between net income using variable costing & absorption costing = $440000 - $360000 = $80,000 Answer E Determine the company's variable-costing net income Sales $8,100,000 Less : Variable cost - Manufacturing cost $3,240,000 - Selling and administrative cost $1,080,000 $4,320,000 Contribution Margin $3,780,000 Less : Fixed Expenses - Manufacturing cost $800,000 - Selling and administrative cost $925,000 $1,725,000 Net Income $2,055,000 Answer G Determine the company's absorption-costing net income Sales $8,100,000 Less : Cost of manufacturing $3,960,000 Gross Margin $4,140,000 Less : Selling and administrative exp. - Variable $1,080,000 - Fixed $925,000 $2,005,000 Net Income $2,135,000 Answer H Reconciliation of net income amounts Net Income as per Absorption costing $2,135,000 Less : Fixed manufacturing cost included in Ending Inventory [20000 units * $4] $80,000 Net Income as per Variable costing $2,055,000

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