ADM 2341 Lecture Notes - Lecture 8: Total Absorption Costing, Income Statement, Earnings Before Interest And Taxes

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harlequinbear906

18 Apr 2017

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The vice president of sales at golfville corporation would like to prepare the income statement for. The data needed is given below: unit sales price for january averaged . Inventory, ending: 50,000 units: units sold : 100,000, total manufacturing cost: per unit, selling and admin : per unit, fixed costs: manufacturing ,000, selling and administrative ,000. 200,000: prepare the january income statement using absorption costing. (add) cogm. 400,000: reconcile and explain the difference between income figures when variable costing and absorption costing are used. Where, fixed moh/units produced = 600,000/150,000 = . 400,000 ( x 50,000: provide the vice president of sales with sound reasons for using variable costing for income measurement. Variable costing income is only affected by changes in unit sales. It is not affected by the number of units produced. As a general rule, when sales go up, net operating income goes up, and vice versa.

Related Questions

The manager of the manufacturing division of Iowa Windows doesnot understand why income went down when sales went up. Some of theinformation he has selected for evaluation include:

	January	February
Units produced	40,000	30,000
Units sold	30,000	40,000
Sales	$600,000	$800,000
Beginning inventory	0	150,000
Cost of production	600,000	550,000
Ending inventory	150,000	0
Operating income	70,000	35,000

The division operated at normal capacity during January.Variable manufacturing cost per unit was $5, and the fixed costswere $400,000. Selling and administrative expenses were allfixed.

Required:

Explain the profit differences. How would variable costingincome statements help the manager understand the division'soperating income?

Please show calculations!

thank you,

amethystmanatee335

Trez 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 this year follows.


Sales (80,000 units Ã $40 per unit)			$	3,200,000
Cost of goods sold
Beginning inventory	$	0
Cost of goods manufactured (100,000 units Ã $20 per unit)		2,000,000
Cost of good available for sale		2,000,000
Ending inventory (20,000 Ã $20)		400,000
Cost of goods sold				1,600,000
Gross margin				1,600,000
Selling and administrative expenses				610,000
Net income			$	990,000

Additional Information

Selling and administrative expenses consist of $450,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.

The company's product cost of $20 per unit is computed as follows.


Direct materials	$	3	per unit
Direct labor	$	9	per unit
Variable overhead	$	2	per unit
Fixed overhead ($600,000 / 100,000 units)	$	6	per unit

Required:
1. Prepare an income statement for the company under variable costing.

TREZ Company
Variable Costing Income Statement
Sales
Plus: Cost of goods sold












Net income (loss)

bluealpaca966

Show your work

Preparing a Comprehensive Budget

Ginnie Springs Company has been bottling and selling water since1940. The companyâs current owner would like to know how a newproduct would affect the companyâs rent income in the comingyear.

Required

Calculate Ginnie Springs net income for the new product in thecoming year by completing the operating budgets and budgeted incomestatement that follow. Assume that the selling price will remainconstant.

Sales budget

Ginnie Springs Company

Sales Budget

Forthe year Ended December 31

Quarter

	1	2	3	4	Year
Sales in Units	40,000	30,000	50,000	55,000	175,000
Selling price per unit	X $1	X ?	X ?	X ?	X ?
Totals Sales	40,000	$ ?	X ?	X ?	X ?

2. Production Budget:

Ginnie SpringsCompany

ProductionBudget

For the year Ended December31_____________

Quarter

	1	2	3	4	Year
Sales in Units	40,000	?	?	?	?
Plus desired units of ending finished goods inventory*	30,000	?	?	6000	6000
Desired total Units	43000	?	?	?	?
Less desired units of ending finished goods inventory*	4000	?	?	?	4000
Total Production units	39,000	?	?	?	?

*Desired units of ending finished goods inventory = 10% of nextquarterâs budgeted production needs in ounces. Desired ounces ofbeginning direct materials inventory = 20% of current quartersbudgeted production needs in ounces.

3.DirectMaterials Purchases budget

Ginnie SpringsCompany

Direct Materials PurchaseBudget

For the year Ended December31_____________

Quarter

	1	2	3	4	Year
Total production units	39,000	32,000	50,500	55,500	?
Ounces per unit	X 20	X 20	X 20	X 20	X 20
Total production needs in ounces	780,000	?	?	?	?
Plus desired ounces of ending direct materials inventory*	128,000 908,000	? ?	? ?	240,000 ?	240,000 ?
Less desired ounces of ending direct materials inventory*	156,000	?	?	?	156,000
Total ounces of direct material to be purchased	752,000	?	?	?	?
Cost per ounce	X $0.01	X ?	X ?	X ?	X ?
Total cost of direct materials purchases	$7520	?	?	?	?

Desired ounces of ending direct material inventory =20% of nextquarters budgeted production needs in ounces.

Desired ounces of beginning direct materials inventory = 20% ofcurrent quarters budgeted production needs in ounces.

4.Directlabor budget:

Ginnie SpringsCompany

Direct LaborBudget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Total production units	39,000	?	?	?	?
Direct labor hours per units	X 0.001	X ?	X ?	X ?	X ?
Total direct labor hours	39.0	?	?	?	?
Direct labor cost per hour	X $8	X ?	X ?	X ?	X ?
Total direct labor cost	$312	$ ?	$ ?	$ ?	$ ?

5.Overheadbudget

Ginnie SpringsCompany

Overhead Budget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Variable overhead costs:
Factory supplies ($0.01)	$ 390	$ ?	$ ?	$ ?	$ ?
Employee benefits ($0.05)	1,950	?	?	?	?
Inspection ($0.01)	390	?	?	?	?
Maintenance and repairs($0.02)	780	?	?	?	?
Utilities ($0.01)	390	?	?	?	?
Total Variable overheadcosts	$3900	$ ?	$ ?	$ ?	$ ?
Total fixed overhead costs	1416	?	?	?	?
Total overhead costs	$5,316	$ ?	$ ?	$ ?	$ ?

Note: The figures in parentheses are variable costs perunit.

6.Sellingand administrative expenses budget:

Ginnie SpringsCompany

Selling and Administrative Expenses Budget

For the year EndedDecember 31_____________

Quarter

	1	2	3	4	Year
Variable Selling and Administrative expenses
Delivery expenses ($0.01)	$ 400	$ ?	$ ?	$ ?	$ ?
Sales Commission ($0.02)	800	?	?	?	?
Accounting ($0.01)	400	?	?	?	?
Other administrative expenses($0.01)	400	?	?	?	?
Total Variable selling and administrative exp.	$2,000	$ ?	$ ?	$?	$?
Total fixed selling and administrative exp.	5000	?	?	$?	?
Total selling and administrative expenses	$ 7,000	$ ?	$ ?	$ ?	$ ?

Note: The figures in parentheses arevariable costs per unit

7. Cost of goods manufactured budget:

Ginnie SpringsCompany

Cost of Goods Manufactured Budget

For the year EndedDecember 31_____________

Direct Material Used:

Direct Material Inventory,Beginning

Purchases

Cost of Direct materials available foruse

Less: Direct materials Inventory,ending

Cost of Direct Materialsused

Direct laborcosts:

Overhead costs:

Total manufacturing costs

Work in Process Inventory,beginning*

Less: work in process inventory,ending*

Cost of Goods Manufactured

Units produced

Manufactured cost perunit

It is the companyâs policy to have no units in process at theend of theyear.

8. Budgeted income statement

Ginnie Springs Company

Selling and Administrative Expenses Budget

For the year EndedDecember 31_____________

Sales

Cost of goods sold

Finished goods inventory beginning

Cost of goods manufactured

Cost of Goods available for sale

Less finished goods inventory, ending

Cost of good sold

Gross margin

Selling and administrative expenses

Income from operations

Income taxes expenses (30% tax rate)

Net Income

lemonhamster976

ADM 2341 Lecture Notes - Lecture 8: Total Absorption Costing, Income Statement, Earnings Before Interest And Taxes

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