2.
2. Year 1 Year 2 Year 3
Sales in Unit 800 1,100 900
Production in Unit 1,000 1,000 1,000
Fixed manufacturing overhead $ 2,000 2,000 2,000
The variable costing expenses all fixed manufacturing overhead for a period. The absorption costing expenses fixed manufacturing overhead only for units sold for a period.
- Determine which costing’s net income is higher for year 1. How much?
- Determine which costing’s net income is higher for year 2. How much?
- Determine which costing’s net income is higher for year 3. How much?
Homework Answers
Under variable costing all of the fixed manufacturing overhead is charged as period cost whereas under absorption costing ,Fixed manufacturing overhead forms part of product cost and thus will be charged as and when units are sold.
So when number of units sold is less than number of units produced, Income under absorption costing will be higher .
When number of units sold is more than number of units produced ,Income under variable costing will be higher.
When number of units sold is equals to number of units produced ,income under both methods are equal.
a)
Since number of units sold is less than number of units produced ,Income under absorption costing will be higher .
Net income will be higher by =units in ending inventory * fixed manufacturing overhead per unit
= 200*2
= $400
working:
Fixed manufacturing overhead per unit = Total fixed overhead /number of units produced
= 2000 /1000
= $ 2 per unit
Units in ending inventory = units produced -units sold
= 1000-800
= 200
b)
When number of units sold is more than number of units produced ,Income under variable costing will be higher.
Net income will be higher by 200 as less overhead charged in variable costing.
| Absorption costing | variable costing | |
| Fixed manufacturing overhead charged for year 2 | 2200 | 2000 |
| 2200-2000 =200 | ||
Fixed overhead charged under absorption costing : 2000 (for 1000 units produced this year) + 200 (for 100 units left in inventory last year 100*2)
= 2000 +200
= 2200
c)
Since number of units sold is less than number of units produced ,Income under absorption costing will be higher .
Net income will be higher by =units in ending inventory * fixed manufacturing overhead per unit
= 100*2
= $200
working:
Fixed manufacturing overhead per unit = Total fixed overhead /number of units produced
= 2000 /1000
= $ 2 per unit
Units in ending inventory = units produced -units sold
= 1000-900
= 100
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During Heaton Company’s first two years of operations, it reported absorption costing net operating income as...
During Heaton Company’s first two years of operations, it
reported absorption costing net operating income as follows:
Year 1
Year 2
Sales (@ $62 per unit)
$
1,054,000
$
1,674,000
Cost of goods sold (@ $40 per unit)
680,000
1,080,000
Gross margin
374,000
594,000
Selling and administrative expenses*
300,000
330,000
Net operating income
$
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$
264,000
* $3 per unit variable; $249,000 fixed each year.
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Direct materials
$
7...
Please help with how to solve this problem: During Heaton Company's first two years of operations,...
Please help with how to solve this problem:
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During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $39 per unit) Year 1 945,500 604,500 Year 2 $ 1,555,500 9 94,500 Gross margin Selling and administrative expenses 341,099, 288,304 561.000 318,300 Net operating income $ 52,700 $ 242,700 * $3 per unit variable; $241,800 fixed each year, The company's $39 unit product cost is computed Direct materials Direct labor Variable...
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During Heaton Company’s first two years of operations, it
reported absorption costing net operating income as follows:
Year 1
Year 2
Sales (@ $62 per unit)
$
1,054,000
$
1,674,000
Cost of goods sold (@ $40 per unit)
680,000
1,080,000
Gross margin
374,000
594,000
Selling and administrative expenses*
300,000
330,000
Net operating income
$
74,000
$
264,000
* $3 per unit variable; $249,000 fixed each year.
The company’s $40 unit product cost is computed as follows:
Direct materials
$
7...
Please help with how to solve this problem:
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales @ $61 per unit) Cost of goods sold (@ $32 per unit) Gross margin Selling and administrative expenses Net operating income Year 1 $ 1,220,000 640,000 580,000 305,000 275,000 Year 2 $ 1,830,000 960,000 870,000 335,000 $ 535,000 *$3 per unit variable: $245,000 fixed each year. The company's $32 unit product cost is computed...
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $63 per unit) Cost of goods sold (@ $43 per unit) Gross margin Selling and administrative expenses* Net operating income Year 1 $ 945,000 645,000 300,000 294,000 $ 6,000 Year 2 $1,575,000 1,075,000 500,000 324,000 $ 176,000 *$3 per unit variable: $249,000 fixed each year. The company's $43 unit product cost is computed as follows: Direct materials Direct labor Variable manufacturing...
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