VARIABLE AND ABSORPTION COSTINGBenches on High began operations at the beginning of 2014. Thiscompany...VARIABLE...

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Accounting

VARIABLE AND ABSORPTION COSTING
Benches on High began operations at the beginning of 2014. Thiscompany produces and sells granite and marble benchtops, designedand customised to individual kitchen specifications. Rob Stone, theowner, is very happy with his overall profitability, but isconfused about some of the numbers. He is curious as to why, whenhe sold exactly twice as many bench tops in 2015 as he did in 2014,his reported annual profit is not exactly twice what it was in 2014(2014: $173,000). The company uses a standard costing system, andfixed manufacturing overheads are allocated according to the numberof units produced in 2014. There are no price, efficiency orspending variances in 2015. All variances are written off to Costof Goods Sold in the year in which they occur. Actual data areprovided in Exhibit 4. Exhibit 4 Actual Data for 2014 and 2015Sales Price (average) $ 1,000 per unit sold Variable manufacturingcosts 100 per unit produced Variable marketing costs 150 per unitsold Fixed manufacturing costs 20,000 Fixed administrative costs40,000 2014 2015 Units produced 500 400 Units sold 300 600Required: (a) Prepare an Income Statement for 2015 using absorptioncosting.
(b) Prepare an Income Statement for 2015 using variable (direct)costing.
(c) Write a brief comment to Mr Patz, explaining why the profitfor 2015 was not twice that of 2014. Include a numerical analysisto justify your explanation.

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1 Income statement2015 2 Income statement2015 Absorption costing variable costing sales 600000 sales 600000 less cost of goods sold less variable cost of goods sold opening stock 140200 28000 opening stock 200100 20000 cost of units manufactured 400150 60000 variable cost of units manufactured 400100 40000 cost of goods available for sale 88000 cost of goods available for sale See Answer

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In: AccountingVARIABLE AND ABSORPTION COSTINGBenches on High began operations at the beginning of 2014. Thiscompany...VARIABLE AND ABSORPTION COSTINGBenches on High began operations at the beginning of 2014. Thiscompany produces and sells granite and marble benchtops, designedand customised to individual kitchen specifications. Rob Stone, theowner, is very happy with his overall profitability, but isconfused about some of the numbers. He is curious as to why, whenhe sold exactly twice as many bench tops in 2015 as he did in 2014,his reported annual profit is not exactly twice what it was in 2014(2014: $173,000). The company uses a standard costing system, andfixed manufacturing overheads are allocated according to the numberof units produced in 2014. There are no price, efficiency orspending variances in 2015. All variances are written off to Costof Goods Sold in the year in which they occur. Actual data areprovided in Exhibit 4. Exhibit 4 Actual Data for 2014 and 2015Sales Price (average) $ 1,000 per unit sold Variable manufacturingcosts 100 per unit produced Variable marketing costs 150 per unitsold Fixed manufacturing costs 20,000 Fixed administrative costs40,000 2014 2015 Units produced 500 400 Units sold 300 600Required: (a) Prepare an Income Statement for 2015 using absorptioncosting.(b) Prepare an Income Statement for 2015 using variable (direct)costing.(c) Write a brief comment to Mr Patz, explaining why the profitfor 2015 was not twice that of 2014. Include a numerical analysisto justify your explanation.