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PROBLEM 6-20 Comprehensive Problem with Labor Fixed [LO1, L02, LO3] Advance Products, Inc., has just organized a new division to manufacture and sell specially designed tables using select hardwoods for personal computers. The division's monthly costs are shown in the schedule below: Manufacturing costs: Variable costs per unit Direct materials . . ..... $86 Variable manufacturing overhead . . . . . . . $4 Fixed manufacturing overhead costs (total) . ... $240,000 Selling and administrative costs: Variable . . .... 15% of sales Fixed (total) . .. $160,000 Advance Products regards all of its workers as full-time employees and the company has a long-standing no-layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The tables sell for $250 each. During the first month of operations, the following activity was recorded: Units produced - 4,000 Units sold . . . . .- 3,200Required: 1. Compute the unit product cost under: 2. Absorption costing. & Variable costing. 2. Prepare an income statement for the month using absorption costing. 3. Prepare a contribution format income statement for the month using variable costing- 4. Assume that the company must obtain additional financing. As a member of top management, which of the statements that you have prepared in (2) and (3) above would you prefer to take with you to negotiate with the bank? Why? 5. Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.ADVANCE PRODUCTS, INC. Manufacturing costs: Variable costs per unit: Direct materials 86 Variable manufacturing overhead 4 Fixed manufacturing overhead costs (total) 240,000 Selling and administrative costs: Variable (percentage of sales) 15% Fixed (total) S 160,000 Activity: Units produced 4,000 Units sold 3,200 Selling price per unit S 250ADVANCE PRODUCTS, INC. Unit Product Cost Absorption Variable Costing Costing Direct materials Variable manufacturing overhead Fixed manufacturing overhead Unit product cost Try again! Try again! 2. ADVANCE PRODUCTS, INC. Absorption Costing Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses* Net operating income * Variable Fixed Total S 3. ADVANCE PRODUCTS, INC. Variable Costing Income Statement Sales Variable expenses: Variable cost of goods sold Variable selling and administrative expense Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative expenses Net operating loss $ Try again! 5. Reconciliation: Variable costing net income (loss) Add: Fixed overhead cost deferred in inventory under absorption costing Absorption costing net operating income S Try again

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