Liwa Plastic companys first two years of operations, the company reported absorption costing net operating...
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Liwa Plastic companys first two years of operations, the company reported absorption costing net operating income as follows:
YEAR 1
YEAR 2
Sales (at $25 per unit)
$ 500,000
$750,000
Less: Cost of goods sold:
Beginning inventory
Add: Cost of goods manufactured (at $17 per unit)
0
425,000
85,000
425,000
Goods available for sale
Less: ending inventory (at $17 per unit)
425,000
85,000
510,000
0
Cost of goods sold
340,000
510,000
Gross Margin
160,000
240,000
**Selling and administrative expenses
155,000
170,000
Net operating Income
$ 5,000
$ 70,000
** Selling & Administrative expenses - $1.50 per unit is variable; $125,000 fixed each year
The company s unit product cost is computed as follows:
Direct Materials
$4
Direct Labor
5
Variable factory overhead
1
Variable selling & administrative
7
Unit product cost
$ 17
Production and cost data for the two years are given below:
Year 1
Year 2
Unit produced
25,000
25,000
Units sold
20,000
30,000
Required:
a) Prepare a variable costing income statement for each year in the contribution format. (4.5marks)
b)Reconcile the absorption costing and variable costing net operating income figures for each
year.
| YEAR 1 | YEAR 2 |
Sales (at $25 per unit) | $ 500,000 | $750,000 |
Less: Cost of goods sold: Beginning inventory Add: Cost of goods manufactured (at $17 per unit) |
0 425,000 |
85,000 425,000 |
Goods available for sale Less: ending inventory (at $17 per unit) | 425,000 85,000 | 510,000 0 |
Cost of goods sold | 340,000 | 510,000 |
Gross Margin | 160,000 | 240,000 |
**Selling and administrative expenses | 155,000 | 170,000 |
Net operating Income | $ 5,000 | $ 70,000 |
** Selling & Administrative expenses - $1.50 per unit is variable; $125,000 fixed each year
The company s unit product cost is computed as follows:
Direct Materials | $4 |
Direct Labor | 5 |
Variable factory overhead | 1 |
Variable selling & administrative | 7 |
Unit product cost | $ 17 |
Production and cost data for the two years are given below:
Year 1 | Year 2 | |
Unit produced | 25,000 | 25,000 |
Units sold | 20,000 | 30,000 |
Required:
(4.5marks)
b)Reconcile the absorption costing and variable costing net operating income figures for each
year.
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