Dilithium Batteries is a division of Enterprise Corporation. The division manufa

Question

Dilithium Batteries is a division of Enterprise Corporation. The division manufactures and sells a long-life battery used in a wide variety of applications. During the coming year, it expects to sell 60,000 units for $31 per unit. Nyota Uthura is the division manager. She is considering producing either 60,000 or 90,000 units during the period. Other information is presented in the schedule.

a) Prepare an absorption costing income statement, with one column showing the results if 60,000 units are produced and one column showing the results if 90,000 units are produced.

b)Prepare a variable costing income statement, with one column showing the results if 60,000 units are produced and one column showing the results if 90,000 units are produced.

Division Information for 2017 Beginning inventory 0 Expected sales in units 60,000 Selling price per unit $31 Variable manufacturing costs per unit $13 Fixed manufacturing overhead costs (total) $540,000 Fixed manufacturing overhead costs per unit:     Based on 60,000 units $9 per unit ($540,000 ÷ 60,000)     Based on 90,000 units $6 per unit ($540,000 ÷ 90,000) Manufacturing cost per unit:     Based on 60,000 units $22 per unit ($13 variable + $9 fixed)     Based on 90,000 units $19 per unit ($13 variable + $6 fixed) Variable selling and administrative expenses $2 Fixed selling and administrative expenses (total) $50,000

Explanation / Answer

a).Income statement under absorption method

Fixed selling and administrative 50,000 50,000   

expenses

Net profit 370,000 550,000

a).Income statement under -Variable costing method

Less:

Fixed manufaturing cost 540,000 540,000

Fixed selling and administrative cost 50,000 50,000

Net operating income 370,000 370,000

particulars per unit(at 60,000 units production) Total(60,000) per unit(90,000 production) total(60,000) Sales $31 1,860,000 $31 1,860,000 less:cost of goods sold Begining Nil Nil Nil Nil Variable manufaturing overhead $13 780,000 $13 1,170,000 fixed manufacturing overheaad $9 540,000 $6 540,000 Closing inventory(30,000) nil Nil $19 570,000 cost of goods sold 1,320,000 1,140,000 gross profit 540,000 720,000 Variable selling and administrative expenses $2 120,000 120,000

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