Avant Designs and manufactures polished-nickle fashion bracelets. It offers two

Question

Avant Designs and manufactures polished-nickle fashion bracelets. It offers two bracelets: Aztec and Mayan. The following data summarized budgeted operations for the current year:

AVANT DESIGNS
Summary of Budgeted Operations
Current Year

Aztec Mayan
Sales price/unit $12 $15
Variable cost/unit $4 $5
Units sold 30,000 20,000
Machine minutes/units 2 3
Beginning inventory 0 0
Ending inventory 3,000 1,000

Budgeted fixed manufacturing overhead for the year was $258,000.

Required:
a. Prepare the budgeted income statement for the year using variable costing.

b. Prepare the budgeted income statement for the year using absorbtion costing. budgeted fixed manufacturing overhead is allocated to the bracelets using machine minutes.

c. Explain the difference in earnings and explain why it occurs.

Explanation / Answer

AZTEC

MAYAN

UNITS SOLD

30000

20000

SALES PRICE

12

15

VARIABLE PRICE

4

5

SALES

360000

300000

VARIABLE COST

120000

100000

CONTRIBUTION

240000

200000

SALES

360000

300000

VARIABLE COST

120000

100000

240000

200000

AZTEC =258000 X 2/5= 103200

MAYAN =258000 X 3/5= 154800

AZTEC

MAYAN

UNITS SOLD

30000

20000

SALES PRICE

12

15

VARIABLE PRICE

4

5

SALES

360000

300000

VARIABLE COST

120000

100000

CONTRIBUTION

240000

200000

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