60.1K

Verified Solution

Link Copied!

kindly answer both part a and b. It is one single question. thanks

MC Packaging Company manufactures metal cans used in the food-processing industry. A case of cans sells for $25. The variable standard costs of production for one case of cans are as follows: $7.50 Direct material Direct labor Variable manufacturing overhead 2.50 6.00 Variable selling and administrative costs amount to $0.50 per case. Budgeted fixed manufacturing overhead is $400,000 per year, and fixed selling and administrative cost is $37,500 per year. The following data pertain to the company's first three years of operation. (A unit refers to one case of cans.) Planned production (in units) Finished goods inventory (in units), January 1 Actual production (in units) Sales (in units) Finished goods inventory (in units), December 31 Year 1 80,000 0 80,000 80,000 0 Year 2 80,000 0 80,000 60,000 20,000 Year 3 80,000 20,000 80,000 90,000 10,000 There were no variances during MC Packaging's first three years of operation. Actual costs were the same as the budgeted and standard costs. Required: a. Prepare operating income statements for MC Packaging Company for its first three years of operations using (i) Absorption costing and (ii) Variable costing. (41 marks) b. Reconcile MC Packaging Company's operating income reported under absorption and variable costing for each of its first three years of operation. Comment on them. (9 marks) (Total 50 marks)

Answer & Explanation Solved by verified expert

See Answer