1. Change all of the numbers in the data area of your worksheet so that it...

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Accounting

1. Change all of the numbers in the data area of your worksheet sothat it looks like this:
Data
Selling price per unit $292
Manufacturing costs:
Variable per unit produced:
Direct materials $125
Direct labor $55
Variable manufacturing overhead $23
Fixed manufacturing overhead per year $172,800
Selling and administrative expenses:
Variable per unit sold $7
Fixed per year $74,000
Year 1 Year 2
Units in beginning inventory 0
Units produced during the year 3,200 2,700
Units sold during the year 2,900 2,900
If your formulas are correct, you should get the correct answersto the following questions.
(a) What is the net operating income (loss) in Year 1 underabsorption costing?
(b) What is the net operating income (loss) in Year 2 underabsorption costing?
(c) What is the net operating income (loss) in Year 1 undervariable costing?
(d) What is the net operating income (loss) in Year 2 undervariable costing?
(e) The net operating income (loss) under absorption costing isless than the net operating income (loss) under variable costing inYear 2 because (You may select more than oneanswer.)
Units were left over from the previous year.unanswered
The cost of goods sold is always less under variable costingthan under absorption costing.unanswered
Sales exceeded production so some of the fixed manufacturingoverhead of the period was released from inventories underabsorption costing.unanswered
3. Make a note of the absorption costing net operating income(loss) in Year 2.
At the end of Year 1, the company’s board ofdirectors set a target for Year 2 of the net operating income of$70,000 under absorption costing. If this target is met, a heftybonus would be paid to the CEO of the company. Keeping everythingelse the same from part (2) above, change the units produced inYear 2 to 5,400 units.
(a) Would this change result in a bonus being paid to the CEO? Yesor No?
(b) What is the net operating income (loss) in Year 2 underabsorption costing?
(c) Would this doubling of production in Year 2 be in the bestinterests of the company if sales are expected to continue to be2,900 units per year? yes or no?

Answer & Explanation Solved by verified expert

4.0 Ratings (576 Votes)

1Absorbtion Costing Income StatementUnits29002900Year 1Year 2Revenue 84680000 84680000LessManufacturing costsDirect materials 36250000 36250000Direct labor 15950000 15950000Variable manufacturing overhead 6670000 6670000Fixed manufacturing overhead per year 15660000 See Answer

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1. Change all of the numbers in the data area of your worksheet sothat it looks like this:DataSelling price per unit$292Manufacturing costs:Variable per unit produced:Direct materials$125Direct labor$55Variable manufacturing overhead$23Fixed manufacturing overhead per year$172,800Selling and administrative expenses:Variable per unit sold$7Fixed per year$74,000Year 1Year 2Units in beginning inventory0Units produced during the year3,2002,700Units sold during the year2,9002,900If your formulas are correct, you should get the correct answersto the following questions.(a) What is the net operating income (loss) in Year 1 underabsorption costing?(b) What is the net operating income (loss) in Year 2 underabsorption costing?(c) What is the net operating income (loss) in Year 1 undervariable costing?(d) What is the net operating income (loss) in Year 2 undervariable costing?(e) The net operating income (loss) under absorption costing isless than the net operating income (loss) under variable costing inYear 2 because (You may select more than oneanswer.)Units were left over from the previous year.unansweredThe cost of goods sold is always less under variable costingthan under absorption costing.unansweredSales exceeded production so some of the fixed manufacturingoverhead of the period was released from inventories underabsorption costing.unanswered3. Make a note of the absorption costing net operating income(loss) in Year 2. At the end of Year 1, the company’s board ofdirectors set a target for Year 2 of the net operating income of$70,000 under absorption costing. If this target is met, a heftybonus would be paid to the CEO of the company. Keeping everythingelse the same from part (2) above, change the units produced inYear 2 to 5,400 units.(a) Would this change result in a bonus being paid to the CEO? Yesor No?(b) What is the net operating income (loss) in Year 2 underabsorption costing?(c) Would this doubling of production in Year 2 be in the bestinterests of the company if sales are expected to continue to be2,900 units per year? yes or no?