Concept explainers
Variable and Absorption Costing Unit Product Costs and Income Statements L07—1, L07—2, L07—3
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two ears ofoperations:
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced40,000 units and sold 50,000 units. The selling price of the company’s product is $60 per unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Explain the difference between variable costing and absorption costing net operating income in Year 1. Also, explain why the two netoperating incomes differ in Year 2.
Want to see the full answer?
Check out a sample textbook solutionChapter 7 Solutions
Introduction To Managerial Accounting
- Variable and Absorption Costing Unit Product Costs and Income Statements Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: During its first year of operations. Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $60 per unit. Required: 1. Assume the company uses variable costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year I and Year 2. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year I and Year 2. b. Prepare an income statement tor Year 1 and Year 2. 3. Explain the difference between variable costing and absorption costing net operating income in Year 1. Also, explain why the two net operating incomes differ in Year 2.arrow_forwardDowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. Income Statements (Absorption Costing) Additional Information a. Sales and production data for these first two years follow. Units Units produced Units sold 28,000 Year 1 Year 2 48,000 48,000 68,000 Sales ($59 per unit) 1,652,000 4,012,000 Cost of goods sold ($43 per unit) 1,204,000 2,924,000 Gross profit 448,000 1,088,000 Selling and administrative 314,000 434,000 expenses Income $ 134,000 $ 654,000 Year 1 Direct materials Direct labor Variable overhead Fixed overhead ($480,000/48,000 units) Total product cost per unit b. Variable costs per unit and fixed costs per year are unchanged during these years. The company's $43 per unit product cost using absorption costing consists of the following. $ $ 11 18 4 10 $ 43 c. Selling and administrative expenses consist of the following. Sales Less: Variable expenses Variable cost of goods sold Fixed overhead Year…arrow_forwardDowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. Income Statements (Absorption Costing) Sales ($46 per unit) Year 1 $920,000 620,000 300,000 170,000 $ 130,000 Cost of goods sold ($31 per unit) Gross profit Selling and administrative expenses Income Additional Information a. Sales and production data for these first two years follow. Units Units produced Units sold Direct materials Direct labor Variable overhead Year 1 30,000 20,000 b. Variable costs per unit and fixed costs per year are unchanged during these years. The company's $31 per unit product cost using absorption costing consists of the following. Fixed overhead ($300,000/30,000 units) Total product cost per unit Year 2 30,000 40,000 Income (Loss) $5 9 c. Selling and administrative expenses consist of the following. 10 $31 Selling and Administrative Expenses Variable selling and administrative ($2.50 per unit sold) Fixed selling and…arrow_forward
- Joint products A, B and C are produced by JNT Corp. For the month just ended, these data are available: Using the market value method, the joint cost apportioned to each product will be: A. A – P22,652; B – P13,843; C – P13,335 B. A – P19,995; B – P19,014; C – P10,821 C. A – P22,440; B – P16,005; C – P11,385 D. A – P24,357; B – P14,885; C – P10,588arrow_forwardes Dowell Company produces a single product. Its income under variable costing for its first two years of operation follow. Variable Costing Income Income Additional Information Year 1 $ 33,000 Year 2 $510,000 a. Sales and production data for these first two years follow. Units Units produced Units sold Year 1 33,300 23,000 Year 2 33,300 43,600 b. The company's $38 per unit product cost (for both years) using absorption costing consists of the following. Direct materials Direct labor Variable overhead Fixed overhead ($330,000/33,000 units) Total product cost per unit Required: $ 7 11 10 10 $ 38 Prepare a statement to convert variable costing income to absorption costing income for both years. (Leave no cells blank - be certain to enter "O" wherever required.) Dowell Company Convert Variable Costing Income to Absorption Costing Income Year 1 Year 2 Variable costing income $ 33,000 $ 510,000 Absorption costing incomearrow_forwardLevy company produces a single product last year the company net operatingincome computed by the absorption costing method was 12,000 and its netoperating income computed by the variable costing method was 9,000 thecompany unit product cost was 17 under variable costing and 20 underabsorption costing. If the Beginning inventory consisted of 3,000 units, the Endinginventory must have been _____ unitsarrow_forward
- Vacation Corporation produces a single product. Data concerning the company's first year of operations appear below: Units produced Units sold Selling price per unit Direct Materials Direct Labor Variable OH Variable selling & administrative Fixed OH Fixed selling & administrative Compute for the difference in net operating income between absorption costing and variable costing for the year. P P P P P 10,000.00 9,000.00 60.00 15.00 5.00 2.00 4.00 P200,000.00 P70,000.00arrow_forwardCost Behavior; Contribution Format Income Statement Harris Company manufactures and sells a single product. A partially completed schedule of the company’s total costs and costs per unit over the relevant range of 30,000 to 50,000 units is given below: Required: 1. Complete the above schedule of the company’s total costs and costs per unit. 2. Assume that the company produces and sells 45,000 units during the year at a selling price of $ 16 per unit. Prepare a contribution format income statement for the year.arrow_forwardTopic 1 (25 units) Topic 1 (25 units) the production range of the Martinez Company ranges from 7,500 units to 12,500 product units. When it produces and sells 10,000 units, the unit cost is as follows: Unit Cost Direct Materials 6,00€ Direct Work 3,50€ Metavlita G.B.E. 1,50€ Stathera G.B.E. 4,00€ Fixed cost of sales 3,00€ Stable administrative expenditure 2,00€ Sales commissions 1,00€ Variable administrative expenditure 0,50€ They ask: Calculate the total cost of the period incurred for the sale of 10,000 units. Calculate the variable and the total period cost if 8,000 units were sold . Calculate the variable and total period cost if 12,500 units were sold .arrow_forward
- Required Information [The following information applies to the questions displayed below.] Ramort Company reports the following for its single product. Ramort produced and sold 20,000 units this year. Direct materials Direct labor Variable overhead Fixed overhead Variable selling and administrative expenses Fixed selling and administrative expenses Sales price Compute gross profit under absorption costing. RAMORT COMPANY Gross Profit (Absorption Costing) Sales Cost of goods sold Gross profit 1,200,000 $10 per unit $ 12 per unit $3 per unit $ 40,000 per year $ 2 per unit $ 65,200 per year $ 60 per unitarrow_forwarded Dowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. Income Statements (Absorption Costing) Sales ($60 per unit) Year 1 $ Year 2 $ 1,920,000 3,960,000 Cost of goods sold ($45 per unit) 1,440,000 2,970,000 Gross profit 480,000 990,000 Selling and administrative expenses ok Income t 338,000 474,000 $ 142,000 $ 516,000 Additional Information a. Sales and production data for these first two years follow. Year 1 Year 2 nces Units Units produced 49,000 49,000 Units sold 32,000 66,000 b. Variable costs per unit and fixed costs per year are unchanged during these years. The company's $45 per unit product cost using absorption costing consists of the following. Direct materials Direct labor $ 12 19 Variable overhead Fixed overhead ($539,000/49,000 units) 3 11 Total product cost per unit $ 45 c. Selling and administrative expenses consist of the following. Selling and Administrative Expenses Variable selling and…arrow_forwardDowell Company produces a single product. Its income statements under absorption costing for its first two years of operation follow. Income Statements (Absorption Costing) Sales ($62 per unit) Cost of goods sold ($49 per unit) Gross profit Selling and administrative expenses Income Additional Information a. Sales and production data for these first two years follow. Units Units produced Units sold Year 1 51,000 30,000 b. Variable costs per unit and fixed costs per year are unchanged during these years. The company's $49 per unit product cost using absorption costing consists of the following. Sales Less: Variable expenses Direct materials Direct labor Variable overhead Fixed overhead ($459,000/51,000 units) Total product cost per unit c. Selling and administrative expenses consist of the following. Year 2 51,000 72,000 Contribution margin Less: Fixed expenses Year 1 $ 1,860,000 1,470,000 390,000 275,000 $ 115,000 Variable cost of goods sold Variable selling and administrative expenses…arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning