P19-7C Electricswitch is a division of Cunningham Products Corporation. The divi
ID: 2416408 • Letter: P
Question
P19-7C Electricswitch is a division of Cunningham Products Corporation. The division
manufactures and sells an electric switch used in a wide variety of applications. During
the coming year it expects to sell 200,000 units for $8 per unit. Mel Torme is the division
manager. He is considering producing either 200,000 or 250,000 units during the period.
Other information is presented in the schedule.
Division Information for 2011
Beginning inventory 0
Expected sales in units 200,000
Selling price per unit $8
Variable manufacturing cost per unit $3
Fixed manufacturing overhead cost (total) $500,000
Fixed manufacturing overhead costs per unit:
Based on 200,000 units $2.50 per unit ($500,000 + 200,000)
Based on 250,000 units $2.00 per unit ($500,000 + 250,000)
Manufacturing cost per unit:
55.50 per unit (S3 variable + 52.50 fixed)
35.00 per unit (S3 variable + 52.00 fixed)
Based on 200,000 units
Based on 250,000 units
Variable selling and administrative expense 50.50
Fixed selling and administrative expense (total) $12,000
Instructions
Prepare an absorption costing income statement, with one column showing the results if 200,000 units are produced and one column showing the results if 250,000 units are produced.
Prepare a variable costing income statement, with one column showing the results if 200,000 units are produced and one column showing the results if 250,000 units are produced.
Reconcile the difference in net incomes under the two approaches and explain what accounts for this difference.
Discuss the relative usefulness of the variable costing income statements versus the absorption costing income statements for decision making and for evaluating the manager's performance.
P19-7C Electricswitch is a division of Cunningham Products Corporation. The division Prepare absorption and manufactures and sells an electric switch used in a wide variety of applications. During variable costing income the coming year it expects to sell 200,000 units for $8 per unit. Mel Torme is the division statements and reconcile manager. He is considering producing either 200,000 or 250,000 units during the period. diferences between Other information is presented in the schedule. Division Information for 2011 Beginning inventory Expected sales in units Selling price per unit Variable manufacturing cost per unit Fixed manufacturing overhead cost (total)$500,000 differences between absorption and variable costing income statements when sales level and production level change Discuss relative usefulness of absorption costing versus variable costing (SO 6, 7, 8) 0 200,000 $8 $3 Fixed manufacturing overhead costs per unit: $2.50 per unit ($500,000 ÷ 200,000) $2.00 per unit ($500,000 ÷ 250,000) Based on 200,000 units Based on 250,000 units Manufacturing cost per unit: Based on 200,000 units Based on 250,000 units $5.50 per unit ($3 variable + $2.50 fixed) $5.00 per unit ($3 variable + $2.00 fixed) $0.50 $12,000 Variable selling and administrative expense Fixed selling and administrative expense (total) Instructions (a) Prepare an absorption costing income statement, with one column showing the re- (a) 250,000 produced N.I, $488,000 sults if 200,000 units are produced and one column showing the results if 250,000 units are produced (b) Prepare a variable costing income statement, with one column showing the results (b) 250,000 produced N.I, $388,000 if 200,000 units are produced and one column showing the results if 250,000 units are produced (c) Reconcile the difference in net incomes under the two approaches and explain what accounts for this difference LIE versus the absorption costing income statements for decision making and for evalu- ating the manager's performance. (d) > Discuss the relative usefulness of the variable costing income statementsExplanation / Answer
Absorption income statment
Variable income statment
Reconciliation
Sales 1,600,000 1,600,000 less:cost of goods sold 1,100,000 1,000,000 Gross profit 500,000 600,000 less:Variable selling .50 100,000 100,000 fixed selling 12,000 12,000 Net income 388,000 488,000Related Questions
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