Sales price P15 per unit Variable costs: SG&A P2 per unit Production P4 per unit Fixed costs (total cost...

Free

90.2K

Verified Solution

Question

Accounting

Sales price P15 per unit
Variable costs:
SG&A P2 per unit
Production P4 per unit
Fixed costs (total cost incurred for the
year):
SG&A P14,000
Production P20,000
During the first year, Sherrill Corporation manufactured 5,000units and sold 3,800. There was no beginning or endingwork-in-process inventory.
1. How much income before income taxes would be reported ifStanley uses absorption costing?
2. How much income before income taxes would be reported ifvariable costing was used?
3. Show why the two costing methods give different incomeamounts

Answer & Explanation Solved by verified expert

3.7 Ratings (345 Votes)

Answer for 1)

Income before taxes:

Partculars	P	P
Sales (3800units×P15)		57000
(Less) Variable cost
SG&A (3800units×P2)	7600
Production (3800units×P4)	15200	22800
Contribution		34200
(Less) Fixed cost
SG&A(P14000×3800 units/5000 units)	10640
Production(P20000×3800units/5000 units)	15200	25840
Probit before Tax		8360

Answer for 2)

Partculars	P	P
Sales (3800 units×P15)		57000
(Less) variable cost
SG&A (3800 Units×P2)	7600
Production (3800 units×P4)	15200	22800
Contribution		34200
(Less) fixed costs
SG&A	14000
Production	20000	34000
Profit before tax		200

Answer for 3)

In absorption costing only fixed costs attributed to that particular units are taken into account as they are treated to be product costs whereas in variable costing entire fixed costs are taken regardless the units in hand at the end of financial period as they are treated as period costs.

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member