Variable and Absorption Costing Summarized data for 2016 (the first year of oper

Question

Variable and Absorption Costing
Summarized data for 2016 (the first year of operations) for Trenton Products, Inc., are as follows:

a. Prepare an income statement based on full absorption costing.
Only use a negative sign with your answer for net income (loss), if the answer represents a net loss. Otherwise, do not use negative signs with any answers. Round answers to the nearest whole number, when applicable.

b. Prepare an income statement based on variable costing.
Only use a negative sign with your answer for net income (loss), if the answer represents a net loss. Otherwise, do not use negative signs with any answers. Round answers to the nearest whole number, when applicable.  

c. Assume that you must decide quickly whether to accept a special one-time order for 1,000 units for $42 per unit.  
Which income statement presents the most relevant data? Answerabsorption costingvariable costing

Determine the apparent profit or loss on the special order based solely on these data.
Use a negative sign with your answer if the special order creates an apparent loss. Round answer to the nearest whole number.

$Answer

d. If the ending inventory is destroyed by fire, which costing approach would you use as a basis for filing an insurance claim for the fire loss? Why?
Select the most appropriate statement.

Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

Sales (200,000 units) $12,000,000 Production costs (210,000 units) Direct material 3,150,000 Direct labor 2,520,000 Manufacturing overhead: Variable 1,890,000 Fixed 1,575,000 Operating expenses: Variable 840,000 Fixed 960,000 CLKCK HERE TO REMEN LEANING CBJECTIVES Variable and Absorption Costing ummarized data tor 20M6 ithe tirst year at operarian) tor Trenton Products Ic, areas tolloU Sulcs200.000 unust Produzion coss 1213,000 urhs) Diec matera 12 020,000 3,150,000 520,000 ,575,000 040,000 Ony usea negathe sien with your answer tor net income (lossL it the answer represents a net loss. Gtherwise, donot use neeative sens with any ansiwers. Round answers to the nearest whole number, when applkable Abnorption Costing Incomu Statement Ccstof Gcoz sod: Direct moter : b. pre parc n incomc statement basec cnvariabla costing. y usoa nogeth e sIgn ith our answer fer net income answers to the nane wnlo number, when applicable. os tne answer re esents a nat nes atnon se co nat use nngative signs with any ans en. Rcund Varisble Costing Income Statemers Direct maer peratina expenses Toto Fe Coat r Assume that you must derice ukky herher to accept a specal one-time oder ar 1,00units tor $42 per unit, Whith Incame statement prosents tha ment relaant data Dctarmine the spparent profit or Icss onthe specal order based solcly on thase dat use negatno sign attn your antwor If the special adar creeres an apparent lass. Raund answer to the nearest whoe nmoor. u. If the eno!ng " ven ory IS destruyed y re i ich w slng dporach would you use d as for fil rig en lrtsurance clan! fr Lve firelosz? w.Ty? Select the mest appropriate staterment OAbsorption costing approach because the cost should indlude a reasonable portion of fived manutacturing costs Variable ccating approcch bccasc coat chaulc incucc rcacanable portion offixed manufacturing costs. Check

Explanation / Answer

Part a - Absorption costing Income Statement

Less : Ending Inventory (210000 - 200000) = 10000 units

[($3150000+$2520000+$34650000)/210000*10000]

Part b - Variable costing Income Statement

Part c - For Deciding on selecting or Rejecting a proposal, Variable cost data presents relevant data. It segregate variable and Fixed cost.

Variable cost per unit = [($7560000+$840000)/210000] = $40

Less : Variable cost ($40*1000)

(Fixed Cost is not considered since it is already absorbed)

Special Order should be accepted

Part d - Absorption costing system

For filing Insurance claim, absorption costing system should be adopted. Since Absorption costing includes fixed cost in valuation of ending inventory. Ending inventory value is higher in absorption costing since fixed cost is also included in it. Higher Closing inventory will be able to fetch higher insurance claim.

Particulars Amount Sales $12000000 Cost of Goods Sold :- Beginning Inventory $0 Direct Material $3150000 Direct Labour $2520000 Manufacturing Overhead ($1890000+$1575000) $3465000

Less : Ending Inventory (210000 - 200000) = 10000 units

[($3150000+$2520000+$34650000)/210000*10000]

$435000 Cost of Goods Sold $8700000 Gross Profit $3300000 Operating Expenses ($840000 + $960000) $1800000 Net Income $1500000

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