Sheffield Industries makes artificial Christmas trees. The unit costs for produc

Question

Sheffield Industries makes artificial Christmas trees. The unit costs for producing a tree are Direct materials Direct labor Variable overhead Fixed overhead $27 $13 $13 $5 The company also incurs $2 per tree in variable selling and administrative costs and $3,100 in fixed marketing costs. At the beginning of the year the company had 830 trees in the beginning Finished Goods Inventory. The company produced 2,140 trees during the year. Sales totaled 1,400 trees at a price of $103 per tree. (a) Based on absorption costing, what was the company's operating income for the year? Company's operating income s (b) Based on variable costing, what was the company's operating income for the year? Company's operating income s (c) Assume that in the following year the company produced 2,140 trees and sold 2,550. Based on absorption costing, what was the operating income for that year? Based on variable costing, what was the operating income for that year? Absorption Costing Variable Costing Operating income

Explanation / Answer

Solution:

(a) absorption costing

$57,100

(b) variable costing

(c)

Absorption costing

Variable costing

Amount Sales (1,400x103) $144,200 Cost of goods sold: Variable manufacturing cost (1,400x 53) $74,200 Fixed manufacturing cost (1,400x 5) $7,000 $81,200 Gross margin $63,000 Operating expenses: Variable operating cost (1,400 x2) $2,800 Fixed operating cost $3,100 $5,900 Net operating income

$57,100

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