Adria Lopez expected sales of her line of computer workstation furniture to equa
ID: 2475275 • Letter: A
Question
Adria Lopez expected sales of her line of computer workstation furniture to equal 300 workstations (at a sales price of $3,600) for 2014. The workstations' manufacturing costs include the following.
per year
The selling expenses related to these workstations follow.
Adria is considering how many workstations to produce in 2014. She is confident that she will be able to sell any workstations in her 2014 ending inventory during 2015. However, Adria does not want to overproduce as she does not have sufficient storage space for many more workstations.
Complete the following income statements using absorption costing.
Cost of Goods Sold:
SUCCESS SYSTEMS
Absorption Costing Income Statements
Complete the following income statements using variable costing.
Direct materials $ 780 per unit Direct labor $ 330 per unit Variable overhead $ 70 per unit Fixed overhead $ 24,000per year
Explanation / Answer
Production Volume
Cost of Goods Sold:
300 Workstations
320 Workstations
Direct Materials
780
780
Direct labor
330
330
Variable overhead
70
70
Fixed overhead (24,000/300, 24000/32)
80
75
Cost of goods sold per unit
1,260
1,255
Number of workstations sold
300
300
Total cost of goods sold
378,000
376,500
SUCCESS SYSTEMS
Absorption Costing Income Statements
Production Volume
Sales Volume - 300 Workstations
300 Workstations
320 Workstations
Sales
$1,080,000
$1,080,000
Cost of goods sold
378,000
376,500
Gross Profit
702,000
703,500
Selling expenses
14,500
14,500
Net Income
$687,500
$689,000
Under absorption costing, can the difference between production volume and sales volume affect the reported net income (loss)?
Yes, net income increases by $1,500
2.
SUCCESS SYSTEMS
Variable Costing Income Statements
Production volume (units)
300 Workstations
320 Workstations
Sales volume (units)
300 Workstations
300 Workstations
Sales (300 x 3,600)
1,080,000
1,080,000
Variable expenses
Variable cost of goods sold (300 x 1,180)
354,000
354,000
Variable selling expenses (300 x $35)
10,500
10,500
Total variable expenses
364,500
364,500
Contribution margin
715,500
715,500
Fixed expenses
Factory overhead
24,000
24,000
Selling expenses
4,000
4,000
Total fixed expenses
28,000
28,000
Net income (loss)
$687,500
$687,500
Under variable costing, can a company increase its net income by increasing production?
No, it is not affected by increasing production.
Production Volume
Cost of Goods Sold:
300 Workstations
320 Workstations
Direct Materials
780
780
Direct labor
330
330
Variable overhead
70
70
Fixed overhead (24,000/300, 24000/32)
80
75
Cost of goods sold per unit
1,260
1,255
Number of workstations sold
300
300
Total cost of goods sold
378,000
376,500
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