Variable and Absorption Costing-Service Company Rocky\'s Automotive specializes

Question

Variable and Absorption Costing-Service Company
Rocky's Automotive specializes in performing automobile safety checks. After the company's first year of operations, its accountant prepared the following summarized data report for the safety checks for 2016

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 20 safety checks on local police cars for $40 per safety check.
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

Sales (7,000 safety checks) $350,000 Production costs (7,010 safety checks) Direct labor 245,350 Shop overhead Variable 56,080 Fixed 35,050 Operating expenses Variable 10,515 Fixed 8,000 QUESTION S Nor complese Palnes our of aco Flor ques:an ariable and Absorption Costing-Service Company Rocky's Automotve speciallzes In pertormina automobile sarety checks. Atter the company's tirst year ot operations rs accountant prepared Lhe Tolowing suiariced dela repart for Lhe sa ely checks for 2016 5320,000 245,30 Shap overhesc arable Fined 0,515 boed 8,000 a. Preparc an income statement based on full absorption costing Only use a negative sign with your answer tor net income(loss), it the answer eresents a net loss, otherwise, do not use reative sens with any aiswers. Houand aresivers to the nearest whole numer, whe applicable Abaorption Custing Incomu Staterment Suua eginnirg Irvencoy Direlabor .ofcods sold NetIncome Loss b. Prepare an incorne sldlerment based on var iable cosing. Only use a ncgative sign with your answer for net Income (loss). if the answer represents a not loss, Otherwisc, do not use negattve signs with any answers. Round anewers to the nearest whole number, when applicable. Variable Costing Income Statement ariabie cost ot Gooca Soic Lessi Endins weor iced enre Operiexperses otal Fixed Cost c. Assume that you must decide quiddy whether to accept a spedal onecimc order for 20 sofety checks on local police cars for $40 per safety check Which Income statement presents the most relavant data? Determine the apparent profit or loss on the special order based solely on these data. Use a negative sign with your answer ifthe spetial arder creates an apperent ss.Found answer ta the rneatest whele rumiber Check

Explanation / Answer

A. Absorption Costing Income Statement Sales (7000 x 50) 350000 Cost of Goods Sold Beginning Inventory 0 Direct labour 245350 Shop Overhead 91130 Total Product cost 336480 Less : Ending Inventory (336480/7010*10) -480 Cost of Goods Sold 336000 Gross Profit Margin 14000 Less : Operating Expenses -18515 Net Loss -4515 B. Variable Costing Income Statement Sales (7000 x 50) 350000 Cost of Goods Sold Beginning Inventory                -   Direct labour 245350 Shop Overhead (Variable) 56080 Total Product cost 301430 Less : Ending Inventory (301430/7010*10) -430 Variable Cost of Goods Sold 301000 Gross profit Shop overhead / Contribution Margin 49000 Less : Variable Operating Expenses -10515 Less :Fixed Costs Shop Overhead -35050 Operating Expenses -8000 Net Loss -4565 We can assume that variable Operating expenses is not be part of cost of goods sold. C. proposed Sale Per Unit $40 Less : Variable cost Direct labour (245350/7010) -35 Shop Overhead (56080/7010) -8 Contribution Margin ($3) In the given case, company will borne loss of contribution margin of $3 Per safety Checks, if company accept a special one time order for 20 Safety checks. i.e. 20 x $3 = Loss of $ 60. Therefore, Company should not accepted such offer. Variable costing is most appropriate for deciding whether company should accepted such special offer or not.

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