# Calculator Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs...

Calculator Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales \$1,280,000 \$840,000 (168,000) Cost of goods sold: Cost of goods manufactured Ending inventory Total cost of goods sold Gross profit Selling and administrative expenses Operating income (672,000) \$608,000 (305,000) \$303,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 Sales \$1,280,000 Variable cost of goods soldi Variable cost of goods manufactured \$600,000 Ending inventory (120,000) her Romaininn
Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin Sales Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 \$1,280,000 Variable cost of goods sold: Variable cost of goods manufactured \$600,000 Ending inventory (120,000) Total variable cost of goods sold (480,000) Manufacturing margin \$800,000 Variable selling and administrative expenses (240,000) Contribution margin \$560,000 Fixed costs: Fixed manufacturing costs \$240,000 Fixed seling and administrative expenses 65,000 Total fixed costs (305,000) Operating income \$255,000 Method Comparison Review the income statements on the absorption Statement and variable Statement, then complete the following table. The company's sales price per unit is \$80, and the number of units in ending inventory is 4,000. There was no beginning inventory Item Amount Number of units cold Check My Work more Check My Work uses remaining
Calculator Method Comparison Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company's sales price per unit is \$80, and the number of units in ending inventory is 4,000. There was no beginning inventory. Item Amount Number of units sold Variable sales and administrative cost per unit Number of units manufactured Variable cost of goods manufactured per unit Foxed manufacturing cost per unit Manufacturing Decisions Whenever the units manufactured differ from the units sold, finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making station should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controllable costs or noncontrollable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the variable Statement, he notices that the operating income is higher on the absorption cost Income statement. He is considering manufacturing another 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter "O". 1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. Then prepare similar Income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels Operating Income Check My Work more Check My Work uses remaining Email instructor Save and Ext Submit Assignment for Grading
CengageNOW2 Online teaching and learning Resource from Cengagele Calculator SEVISHES COSTESSORIES 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total faced costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter '0" 1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels. Operating Income Original Production Original Production Additional 10,000 Additional 10,000 Level-Absorption Level-Variable Units-Absorption Units-Variable 2. What is the change in operating income from producing 10,000 additional units under absorption costing? 3. What is the change in operating income from producing 10,000 additional units under variable costing? 4. What would be your recommendation to the production manager? a. Do not produce the extra 10,000 units. The increase in operating income under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs B. Produce the extra 10,000 units. Operating income will be increased, and the production manager will receive praise for creating higher profits. C. Do not produce the extra 10,000 units. Operating income does not change under absorption costing when the additional units are produced, d. Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold. Check My Work more Check My Work uses remaining Suhted

 Item Amount Number of units sold 1,280,000 / 80 = 16000 Variable sales and administrative cost per unit 240,000 /16000 = \$15 Number of units manufactured 16000 + 4000 = 20000 Variable cost of goods manufactured per unit 600000 / 20000 = \$30 Fixed manufacturing cost per unit (840000-600000)/20000 = \$12
 10,000 addtional 10,000 addtional Original Absorption Original Variable Absorption Variable Net income 303000 255000 367000 255000

working note:

 The variable net income will not change as this is based on variable costing, and sales units are the same under both the production levels. Additional 10,000 units of production New production units 30000 Total fixed manufacturing overheads 240000 Fixed manufacturing overhead per unit 8 Ending inventory (30,000 - 16,000) 14000 Fixed manufacturing costs in ending inventory 112000 Net income under absorption costing (255000 +112,000) 367000

2.

Net change in operating income from producing 10000 units additional in absorption costing = \$64000

3.

Net change in operating income from producing 10000 units additional in variable costing = \$0

4.

Recommendation is a - do not produce extra units

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