Managerial Accounting 1B Ch19

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Managerial Accounting 1B

Financial
and Managerial Accounting

Chapter 19

1.

Exercise 19-1 Income reporting under absorption costing and
variable costing L.O. P2






Adams Company, a manufacturer of
in-home decorative fountains, began operations on September 1 of the current
year. Its cost and sales information for this year follows.



































































































Production costs









Direct
materials



$



40



per unit



Direct
labor



$



60



per unit



Overhead
costs for the year









Variable
overhead



$



3,000,000





Fixed
overhead



$



7,000,000





Nonproduction costs
for the year









Variable
selling and administrative



$



770,000





Fixed
selling and administrative



$



4,250,000





Production and sales
for the year









Units
produced





100,000



units



Units
sold





70,000



units



Sales
price per unit



$



350



per unit












1.



Prepare an income statement for
the company using absorption costing.
(Input
all amounts as positive values except net loss which should be indicated with
a minus sign. Omit the “$” sign in your response.)








2.



Prepare an income statement for
the company using variable costing.
(Input
all amounts as positive values except net loss which should be indicated with
a minus sign. Omit the “$” sign in your response.)








3.



Under what circumstance(s) is
reported income identical under both absorption costing and variable costing?








Exercise 19-4 Income reporting under absorption costing and
variable costing L.O. P2

[The following information applies to the questions displayed
below.]






Woodson Company, a producer of
solid oak tables, reports the following data from its current year
operations, which is its second year of business.


2.Exercise 19-4 Part
1







1.



Prepare the current year income
statement for the company using absorption costing.
(Input all amounts as positive values except net loss which
should be indicated with a minus sign. Leave no cells blank – be certain to
enter “0” wherever required. Omit the “$” sign in
your response.)


3.Exercise 19-4 Part
2







2.



Prepare the current year income
statement for the company using variable costing.
(Input all amounts as positive values except net loss which
should be indicated with a minus sign. Leave no cells blank – be certain to
enter “0” wherever required. Omit the “$” sign in your
response.)


4.Exercise 19-6
Converting variable costing income to absorption costing income L.O. P2, P4






Lyon Furnaces prepares the income
statement under variable costing for its managerial reports, and it prepares
the income statement under absorption costing for external reporting. For its
first month of operations, 375 furnaces were produced and 225 were sold; this
left 150 furnaces in ending inventory. The income statement information under
variable costing follows.




































































Sales (225 × $1,600)



$



360,000



Variable production
cost (225 × $625)





140,625



Variable selling and
administrative expenses (225 × $65)





14,625











Contribution margin





204,750



Fixed overhead cost





56,250



Fixed selling and administrative
expense





75,000











Net income



$



73,500
























1.



Prepare this company’s income
statement for its first month of operations under absorption costing.
(Input all amounts as positive values except net loss which
should be indicated with a minus sign. Omit the “$” sign in your
response.)


5.

Exercise 19-9 Contribution margin format income statement L.O.
P3






Polarix is a retailer of ATVs (all
terrain vehicles) and accessories. An income statement for its Consumer ATV
Department for the current year follows. ATVs sell, on average, for $3,800.
Variable selling expenses are $270 each. The remaining selling expenses are
fixed. Administrative expenses are 40% variable and 60% fixed. The company
does not manufacture its own ATVs; it purchases them from a supplier for
$1,830 each.
















































































POLARIX

Income Statement—Consumer ATV Department
For Year Ended December 21, 2011



Sales







$



646,000



Cost of goods sold









311,100















Gross margin









334,900



Operating expenses











Selling
expenses



$



135,000







Administrative
expenses





59,500





194,500

















Net income







$



140,400



























Required:








1.



Prepare an income statement for
this current year using the contribution margin format.
(Input all amounts as positive values except net loss which
should be indicated with a minus sign. Omit the “$” sign in your
response.)








2.



For each ATV sold during this
year, what is the contribution toward covering fixed expenses and that toward
earning income?
(Omit the “$” sign
in your response.)








Contribution margin
per ATV




6.

Exercise 19-11 Absorption costing and over-production L.O. C2






Rourke Inc. reports the following
annual cost data for its single product.

























































Normal production and
sales level





60,000



units



Sales price



$



56.00



per unit



Direct materials



$



9.00





Direct labor



$



6.50



per unit



Variable overhead



$



11.00



per unit



Fixed overhead



$



720,000



in total











If Rourke increases its production
to 80,000 units, while sales remain at the current 60,000 unit level, by how
much would the company’s gross margin increase or decrease under absorption
costing? Assume the company has idle capacity to double current production.(Omit the
“$” sign in your response.)









Gross margin






7.Problem 19-1A
Variable costing income statement and conversion to absorption costing income
L.O. P2, P4






Torres Company began operations
this year. During this first year, the company produced 100,000 units and
sold 80,000 units. The absorption costing income statement for its first year
of operations follows.







Additional Information












a.



Selling and administrative
expenses consist of $350,000 in annual fixed expenses and $2.25 per unit in
variable selling and administrative expenses.



b.



The company’s product cost of $30
per unit is computed as follows.




































Direct materials



$



5



per unit



Direct labor



$



14



per unit



Variable overhead



$



2



per unit



Fixed overhead
($900,000 / 100,000 units)



$



9



per unit











Required:








1.



Prepare an income statement for
the company under variable costing.
(Input
all amounts as positive values except net loss which should be indicated with
a minus sign. Omit the “$” sign in your response.)


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