Bird\'s Eye View manufactures satellite dishes used in residential and commercia
ID: 2344129 • Letter: B
Question
Bird's Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The company's annual fixed overhead cost is $750,000; it uses expected capacity of 12,500 units produced as the basis for applying fixed overhead to products. A connussuib if 10% of the selling price is paid on each unit sold. Annual Fixed Selling and Administrative expenses are $180,000.The first column is 2010, second is 2011
Selling price per unit $500 $500
Number of units sold $10,000 $12,000
Number of units produced 12,500 11,000
Beginning Inventory (units) 7,500 10,000
Ending Inventory (units) 10,000 ?
Prepare pre-tax income statements under absorption and variable costing for the years ending 2010, with any volume variance being charged to Cost of Good Sold. Reconcile the differences in income for the two methods.
Explanation / Answer
absorption costing
Sales revenue
5000000
Cost of goods sold
2700000
Gross Margin
2300000
Less Selling and admin
680000
net operating income
1620000
variable costing
Sales revenue
5000000
cost of goods sold
2100000
variable selling and admin
500000
contribution margin
2400000
Less fixed costs
fixed manufacturing
750000
fixed selling and admin
180000
net operating income
1470000
reconciliation:
1620000
absorption income
-150000
10,000*(750,000/12,500)-750,000
(difference in fixed costs)
1470000
variable income
absorption costing
Sales revenue
5000000
Cost of goods sold
2700000
Gross Margin
2300000
Less Selling and admin
680000
net operating income
1620000
variable costing
Sales revenue
5000000
cost of goods sold
2100000
variable selling and admin
500000
contribution margin
2400000
Less fixed costs
fixed manufacturing
750000
fixed selling and admin
180000
net operating income
1470000
reconciliation:
1620000
absorption income
-150000
10,000*(750,000/12,500)-750,000
(difference in fixed costs)
1470000
variable income
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