Huntington Manufacturing manufactures a single product that it will sell for $83

Question

Huntington Manufacturing manufactures a single product that it will sell for $83 per unit. The company is looking to project its operating income for its first two years of operations. Cost information for the single unit of its product is as follows:

Fixed manufacturing overhead (MOH) for each year is $294,000, while fixed operating expenses for each year will be $82,000.

During its first year of operations, the company plans to manufacture 21,000 units and anticipates selling 14,000 of those units. During the second year of its operations, the company plans to manufacture 21,000 units and anticipates selling 25,000 units (it has units in beginning inventory for the second year from its first year of operations).

1. Prepare an absorption costing income statement for:
a.Huntington 's first year of operations
b.Huntington 's second year of operations

Huntington Manufacturing Income Statement (Absorption Costing)

2. Before you prepare the variable costing income statements for Huntington, predict the company's operating income using variable costing for both its first year and its second year without preparing the variable costing income statements. Hint: Calculate the variable costing operating income for a given year by taking that year's absorption costing operating income an adding or subtracting the difference in operating income as calculated using the following formula:
Difference in operating income = (Change in inventory level in units x Fixed MOH per unit)

Begin by calculating the difference in income each year using the formula provided.

Now predict Huntington 's operating income under variable costing for both its first year and its second year of operations.

3. Prepare a variable costing income statement for:
a. Huntington's first year of operations
b. Huntington's second year of operations

Huntington Manufacturing Contribution Margin Income Statement (Variable Costing)

direct material per unit produced $33 Direct labor cost per unit produced $13 Variable manufacturing overhead (MOH) per unit produced $7 Variable operating expenses per unit sold $3

Explanation / Answer

Rreq a: The Absorption Costing Unit Product Cost Year 1 Year 2 Direct Material 33 33 Direct labour 13 13 Variable Manufacturing overheads 7 7 Fixed Manufacturing overheads 14.00 14.00 Absorption costing unit prroduct cost 67.00 67.00 The Absorption Costing Income Statement Under FIFO Year 1 Year 2 Sales $1,162,000 $2,075,000 Cost of Goods sold 938000 1675000 Gross Margin $224,000 $400,000 Selling and distribution expense 124,000 157,000 Net operating income 100,000 243,000 Req b: Change in Inventory Fixed MOH Difference in Income YEar1 7000 14 98000 Year2 -4000 14 -56000 Req c: Operating income Under variable Year 1 100,000-98000 =2,000 Year 2 243,000+56000 =299,000 Req d: The Variable Costing Income Statement under FIFO YEAR 1 YEAR 2 Sales 1,162,000 2,075,000 Less: Variable cost    variable cost of goods sold 742,000 1,325,000    Variable selling expense 42,000 784,000 75,000 1,400,000 Contribution margin 378,000 675,000 Fixed expense:    Fixed Manufacturing overheads 294,000 294,000    Fixed selling expense 82,000 82,000 Net operating Income 2,000 299,000

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