ALL ANSWERS MUST BE IN EXCEL FORMULAS Addison, Inc. makes a single product, an i

Question

ALL ANSWERS MUST BE IN EXCEL FORMULAS

Addison, Inc. makes a single product, an indoor fireplace, and has provided data from last year of operations. The Controller has asked you to compare income statements if the company used the variable costing approach vs. the absorption costing report. Use the information included in the Excel Simulation and the Excel functions described below to complete the task.

Cell Reference: Allows you to refer to data from another cell in the worksheet. From the Excel Simulation below, if in a blank cell, “=B3” was entered, the formula would output the result from cell B3, or 420 in this example.

Basic Math functions: Allows you to use the basic math symbols to perform mathematical functions. You can use the following keys: + (plus sign to add), - (minus sign to subtract), * (asterisk sign to multiply), and / (forward slash to divide). From the Excel Simulation below, if in a blank cell “=B15+B16” was entered, the formula would add the values from those cells and output the result, or 9,500 in this example. If using the other math symbols the result would output an appropriate answer for its function.

SUM function: Allows you to refer to multiple cells and adds all the values. You can add individual cell references or ranges to utilize this function. From the Excel Simulation below, if in a blank cell “=SUM(B6,B7,B8)” was entered, the formula would output the result of adding those three separate cells, or 215 in this example. Similarly, if in a blank cell “=SUM(B6:B8)” was entered, the formula would output the same result of adding those cells, except they are expressed as a range in the formula, and the result would be 215 in this example.

Explanation / Answer

1) If company uses variable costing

a) Unit product cost for one fireplace = Direct materials+Direct labor+Variable manufacturing overhead

= $135+$43+$37 = $215 per unit

b) Contribution Margin Income Statement for the year (Amts in $)

c) Breakeven no. of fireplaces = Total Fixed Cost/Contribution Margin per fireplace

Contribution Margin per fireplace = Selling price - Total variable cost per fireplace

= $420 - $215 - $45 = $160 per fireplace

Breakeven no. of fireplaces = $400,000/$160 = 2,500 fireplaces

2) If company uses absorption costing

a) Unit Product cost = Variable cost of goods sold+Fixed manufacturing OH per unit produced

= $215+($210,000/5,000) = $215+$42 = $257 per fireplace

b) Income Statement for the year (Amounts in $)

Sales (4,500 units*$420 per unit) 1,890,000 Variable expenses: Variable cost of goods sold (4,500 units*$215 per unit) (967,500) Variable selling and administrative expenses (4,500 units*$45) (202,500) (1,170,000) Contribution Margin 720,000 Fixed expenses: Fixed manufacturing overhead (210,000) Fixed selling and administrative expenses (190,000) (400,000) Net Operating Income 320,000

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