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Basic Electric Motors is a division of Basic Electric Products Corporation. The division manufactures and sells an electric switch used in a wide variety of applications. During the coming year, it expects to sell $200,000$ units for $$8$ per unit. Ester Madden is the division manager. She is considering producing either $200,000$ or $250,000$ units during the period. Other information is as follows:

Division Information for $2022$

Beginning inventory

$0$

$$

Expected sales in units

$200,000$

$$

Selling price per unit

$$8$

$$

Variable manufacturing cost per unit

$$3$

$$

Fixed manufacturing cost

$$500,000$

$$

Fixed manufacturing overhead costs per unit

$$

Based on $200,000$ units

$$2\mathrm{.}50$

per unit $($$$500,000-$: $200,000)$

Based on $250,000$ units

$$2\mathrm{.}00$

per unit $($$$500,000-$: $250,000)$

Manufacturing cost per unit

$$

Based on $200,000$ units

$$5\mathrm{.}50$

per unit $($$$3$ variable $+$ $$2\mathrm{.}50$ fixed$)$

Based on $250,000$ units

$$5\mathrm{.}00$

per unit $($$$3$ variable $+$ $$2$ fixed$)$

Variable selling and administrative expenses

$$0\mathrm{.}50$

per unit

Fixed selling and administrative expenses

$$12,000$

$$

Instructions

Prepare an absorption$-$costing income statement, with one column showing the results if $200,000$ units are produced and one column showing the results if $250,000$ units are produced.

a$.250,000$ produced

NI: $$488,000$

Prepare a variable$-$costing income statement, with one column showing the results if $200,000$ units are produced and one column showing the results if $250,000$ units are produced.

b$.250,000$ produced

NI: $$388,000$

Reconcile the difference in the net incomes under the two approaches and explain what causes this difference.

Discuss the usefulness of the variable$-$costing income statement versus the absorption$-$costing income statement for decision$-$making and for evaluating the manager$$s performance.

Prepare income statements under variable costing, absorption costing, and throughput costing and reconcile the differences; discuss the usefulness of absorption costing versus variable costing.

Answer & Explanation Solved by verified expert

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