80.2K

Verified Solution

Link Copied!

Luxury Lugs sells work bags to graduating seniors. It began business in January 2020. It uses a variable costing system for internal reporting and an absorption costing system for external reporting. Information about its first two months of operations follows. Units produced Units sold January 6,000 1,500 February 2,500 1,500 $ 100 $ $ $ Revenue Variable Cost of good sold Variable Marketing and Administrative Expenses Contribution Margin Fixed Manufacturing overhead Fixed Marketing and Administrative Expenses Operating Income Total 150,000 97,500 15,000 37,500 30,000 18,000 (10,500) Per Unit $ $ 65 $ 10 $ 25 $ 20 $ 12 $ (7) Total 150,000 97,500 15,000 37,500 30,000 18,000 (10,500 Per Unit $ 100 $ 65 $ 10 $ 25 $ 20 $ 12 $ (7) $ $ $ $ Luxury Lugs uses the FIFO inventory costing method. Its selling price and cost structure are stable and not expected to change. Notice that variable cost per unit and total fixed cost are the same for both months. Required: 1. Compute the costs of goods sold the will appear on the traditional income statement for January. 2. Compute the amount of fixed cost that will be included in the January ending inventory when absorption costing is used. 3. Will the operating income on the January absorption costing income statement be higher, lower or the same as the operating income on the variable costing income statement? 4. Compute the number of work bags Luxury Lugs must sell to break even. 5. Luxury Lugs is considering whether to rent a stall during the Job Fair. It believes that renting the stall would result in selling an additional 200 work bags. Compute the most it should be willing to pay to rent the stall

Answer & Explanation Solved by verified expert

See Answer