Serial Problem Business Solutions P2, P3 Santana Rey expects sales of Business S

Question

Serial Problem Business Solutions P2, P3

Santana Rey expects sales of Business Solutions’s line of computer workstation furniture to equal 300 workstations (at a sales price of $3,100 each) for 2018. The workstations’ manufacturing costs include the following.

Direct materials $740 per unit

Direct labor $360 per unit

Variable overhead $90 per unit

Fixed overhead $24,000 per year

The selling expenses related to these workstations follow

per year

Variable selling expenses $ 35 per unit Fixed selling expenses $ 3,900

per year

Santana is considering how many workstations to produce in 2018. She is confident that she will be able to sell any workstations in her 2018 ending inventory during 2019. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations.

Required:
1. Complete the following income statements using absorption costing.

Explanation / Answer

1) COGS Amount : Production volume Production volume COGS 300 workstations 320 workstations DM per unit 740 740 DL per unit 360 360 V OH per unit 90 90 F OH per unit 80 75 COGS per unit 1270 1265 Number of Workstations sold 300 300 Total COGS 381000 379500 2)Absorption costing income statement: Production volume 300 workstations 320 workstations Sales Volume 300 workstations 300 workstations Sales   930000 930000 COGS 381000 379500 Gross Margin 549000 550500 Selling G&A Expenses 14400 14400 Net Income 534600 536100 3) Variable Costing Income Statement: Production Volume units 300 workstations 320 workstations Sales volume units 300 workstations 300 workstations Sales   930000 930000 Less: Variable costs: DM 222000 222000 DL 108000 108000 V F OH 27000 27000 V S Exp 10500 10500 Total Variable costs 367500 367500 Contribution Margin 562500 562500 Less: Fixed Expenses: Fixed OH Costs 24000 24000 Fixed Selling Exp 3900 3900 Total Fixed Costs 27900 27900 Net Income 534600 534600

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