incurred during the company’s first year of operations: During the year, the com
ID: 2427871 • Letter: I
Question
incurred during the company’s first year of operations:
During the year, the company produced 31,000 units and sold 21,000 units. The selling price of the company’s product is $44 per unit.
Prepare an income statement for the year.
Prepare an income statement for the year.
The company’s controller believes that the company should have set last year’s selling price at $45 instead of $44 per unit. She estimates the company could have sold 20,000 units at a price of $45 per unit, thereby increasing the company’s gross margin by $5,000 and its net operating income by $7,000.
Do you think the absorption costing approach is the proper way to assess the merits of the proposed price increase?
Do you think the variable costing approach is the proper way to assess the merits of the proposed price increase?
Using the variable costing approach, by how much will profits increase or decrease if the price increase in implemented?
incurred during the company’s first year of operations:
Explanation / Answer
Variable costs per unit: Manufacturing: Direct materials $ 12 Direct labor $ 7 Variable manufacturing overhead $ 2 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 248,000 Fixed selling and administrative expenses $ 158,000 Ans 1 a Absorption costing unit product cost Variable costs per unit: Manufacturing: Direct materials $12 Direct labor $7 Variable manufacturing overhead $2 Fixed manufacturing overhead $8 248000/31000 Unit Product Cost 29 B Income Statement Sales 21000*44 924000 Less: Cost of good sold 29*21000 609000 Gross margin 315000 Variable selling and administrative(21000*2) 42000 Fixed selling and administrative expenses 158000 Net income 115000 Ans 1 a Variable costing unit product cost Variable costs per unit: Manufacturing: Direct materials $12 Direct labor $7 Variable manufacturing overhead $2 Variable selling and administrative $2 Unit Product Cost 23 B Income Statement Sales 21000*44 924000 Less: Variable Cost 23*21000 483000 Gross margin 441000 Fixed manufacturing overhead 248000 Fixed selling and administrative expenses 158000 Net income 35000 Ans 3 Absorption Costing Income Statement Sales 20000*45 900000 Less: Cost of good sold 29*20000 580000 Gross margin 320000 Variable selling and administrative(20000*2) 40000 Fixed selling and administrative expenses 158000 Net income 122000 a) absorption costing- Yes as there is increase in revenue Variable Costing Income Statement Sales 20000*45 900000 Less: Variable Cost 23*20000 460000 Gross margin 440000 Fixed manufacturing overhead 248000 Fixed selling and administrative expenses 158000 Net income 34000 b) No, as there is decrease in revenue c) Gross margin and net income has been decreased by $1000 each
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.