Accounting Two Questions



1. (TCO C) Silver City, Inc., has collected the following operating information below for its current months activity. Using this information, prepare a flexible budget analysis to determine how well Silver City performed in terms of cost control.

Actual Costs Incurred

Static Budget Activity level (in units)



Variable Costs:

Indirect materials






Fixed Costs:



$65, 5002




2. (TCO E) Mesa Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below:

Units in beginning inventory 2,000

Units produced 9,000

Units sold 10,000


Less cost of goods sold: Beginning inventory 12,000

Add cost of goods manufactured 54,000

Goods available for sale 66,000

Less ending inventory 6,000

Cost of goods sold 60,000

Gross margin 40,000

Less selling and admin. expenses 28,000

Net operating income $12,000

Variable manufacturing costs are $4 per unit.

Fixed factory overhead totals $18,000 for the year.

This overhead was applied at a rate of $2 per unit.

Variable selling and administrative expenses were $1 per unit sold.

Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.


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