I need help answering the following. What is the net operating income (loss) in

Question

I need help answering the following.

What is the net operating income (loss) in Year 2 under absorption costing?

Because my answer for this is incorrect, I am unable to answer the following:

Make a note of the absorption costing net operating income (loss) in Year 2.

  

At the end of Year 1, the company’s board of directors set a target for Year 2 of net operating income of $220,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 5,200 units.

  

Would this change result in a bonus being paid to the CEO?

  

What is the net operating income (loss) in Year 2 under absorption costing?

The answers I am getting are showing as incorrect, so my formulas must be wrong somewhere. I think it may be my calculation for fixed manufacturing overhead or the cost of goods sold, but I could be wrong. Please Help!

MY FILLED IN DATA

Chapter 6: Applying Excel

Original data:

Chapter 6: Applying Excel

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?

I need help answering the following.

b)

What is the net operating income (loss) in Year 2 under absorption costing?

Because my answer for this is incorrect, I am unable to answer the following:

3.

Make a note of the absorption costing net operating income (loss) in Year 2.

  

At the end of Year 1, the company’s board of directors set a target for Year 2 of net operating income of $220,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 5,200 units.

  

(a)

Would this change result in a bonus being paid to the CEO?

Yes No

  

(b)

What is the net operating income (loss) in Year 2 under absorption costing?

The answers I am getting are showing as incorrect, so my formulas must be wrong somewhere. I think it may be my calculation for fixed manufacturing overhead or the cost of goods sold, but I could be wrong. Please Help!

MY FILLED IN DATA

Chapter 6: Applying Excel

Data Selling price per unit $378 Manufacturing costs: Variable per unit produced: Direct materials $147 Direct labor $61 Variable manufacturing overhead $23 Fixed manufacturing overhead per year $150,800 Selling and administrative expenses: Variable per unit sold $6 Fixed per year $75,000 Year 1 Year 2 Units in beginning inventory 0 Units produced during the year 2,900 2,600 Units sold during the year 2,700 2,700 Enter a formula into each of the cells marked with a ? below Review Problem 1: Contrasting Variable and Absorption Costing Compute the Ending Inventory Year 1 Year 2 Units in beginning inventory 0 200 Units produced during the year 2,900 2,600 Units sold during the year 2,700 2,700 Units in ending inventory 200 100 Compute the Absorption Costing Unit Product Cost Year 1 Year 2 Direct materials $147 $147 Direct labor 61 61 Variable manufacturing overhead 23 23 Fixed manufacturing overhead 52 58 Absorption costing unit product cost $283 $289 Construct the Absorption Costing Income Statement Year 1 Year 2 Sales $    1,020,600 $   1,020,600 Cost of goods sold          764,100          808,000 Gross margin          256,500          212,600 Selling and administrative expenses            91,200           91,200 Net operating income $       165,300 $      121,400 Compute the Variable Costing Unit Product Cost Year 1 Year 2 Direct materials $147 $147 Direct labor 61 61 Variable manufacturing overhead 23 23 Variable costing unit product cost $231 $231 Construct the Variable Costing Income Statement Year 1 Year 2 Sales $   1,020,600 $ 1,020,600 Variable expenses: Variable cost of goods sold $       623,700 $623,700 Variable selling and administrative expenses            16,200          639,900       16,200 $639,900 Contribution margin          380,700        380,700 Fixed expenses: Fixed manufacturing overhead $150,800 $150,800 Fixed selling and administrative expenses $75,000 $225,800 $75,000 $225,800 Net operating income $      154,900 $     154,900

Original data:

Chapter 6: Applying Excel

Data Selling price per unit $50 Manufacturing costs: Variable per unit produced: Direct materials $11 Direct labor $6 Variable manufacturing overhead $3 Fixed manufacturing overhead per year $120,000 Selling and administrative expenses: Variable per unit sold $4 Fixed per year $70,000 Year 1 Year 2 Units in beginning inventory 0 Units produced during the year 10,000 6,000 Units sold during the year 8,000 8,000 Enter a formula into each of the cells marked with a ? below Review Problem 1: Contrasting Variable and Absorption Costing Compute the Ending Inventory Year 1 Year 2 Units in beginning inventory 0 ? Units produced during the year ? ? Units sold during the year ? ? Units in ending inventory ? ? Compute the Absorption Costing Unit Product Cost Year 1 Year 2 Direct materials ? ? Direct labor ? ? Variable manufacturing overhead ? ? Fixed manufacturing overhead ? ? Absorption costing unit product cost ? ? Construct the Absorption Costing Income Statement Year 1 Year 2 Sales ? ? Cost of goods sold ? ? Gross margin ? ? Selling and administrative expenses ? ? Net operating income ? ? Compute the Variable Costing Unit Product Cost Year 1 Year 2 Direct materials ? ? Direct labor ? ? Variable manufacturing overhead ? ? Variable costing unit product cost ? ? Construct the Variable Costing Income Statement Year 1 Year 2 Sales ? ? Variable expenses: Variable cost of goods sold ? ? Variable selling and administrative expenses ? ? ? ? Contribution margin ? ? Fixed expenses: Fixed manufacturing overhead ? ? Fixed selling and administrative expenses ? ? ? ? Net operating income

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Explanation / Answer

Year 2 Net income under Absorption costing

Sales                                                                         $1,020,600

Less:

Cost of goods sold (2700*289)                                780,300

Gross profit                                                                 240,300

Less:selling expense                                                    91,200

Net income                                                                  149,100

Reconcilation

Net income under variable costing                          154,900

Less: fixed cost in beginning inventory

(200*58)                                                                         -11,600

Add: Fixed cost in ending inventory

(100*58)                                                                             5,800

Income under absorption costing                            149,100

First of all you are charging all cost of 2800 to the cost of goods sold and secondly you are valuing opening inventory at last year fixed cost.

Year 2 Net income under Absorption costing

Sales                                                                         $1,020,600

Less:

Cost of goods sold (2700*289)                                780,300

Gross profit                                                                 240,300

Less:selling expense                                                    91,200

Net income                                                                  149,100

Reconcilation

Net income under variable costing                          154,900

Less: fixed cost in beginning inventory

(200*58)                                                                         -11,600

Add: Fixed cost in ending inventory

(100*58)                                                                             5,800

Income under absorption costing                            149,100

First of all you are charging all cost of 2800 to the cost of goods sold and secondly you are valuing opening inventory at last year fixed cost.

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