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EXERCISE 6-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [L06-3] Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data: Year 1 Year 2 Year 3 Inventories: Beginning (units) ............ ............. Ending (units) ....................... ..... Variable costing net operating income ...... 200 170 170 $1,080,400 170 180 180 $1,032,400 180 220 220 $996,400 The company's fixed manufacturing overhead per unit was constant at $560 for all three years. Required: 1. Determine each year's absorption costing net operating income. Present your answer in the form of a reconciliation report. 2. In Year 4, the company's variable costing net operating income was $984,400 and its absorp- tion costing net operating income was $1,012,400. Did inventories increase or decrease dur- ing Year 4? How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?

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Trinidad Tremblay
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21 Oct 2018

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EXERCISE 6-12 Variable Costing Income Statement; Reconciliation (L06-2, L06-3] Whitman Company has just completed its first year of operations. The company's absorption cost- ing income statement for the year appears below: Whitman Company Income Statement Sales (35,000 units X $25 per unit) .... Cost of goods sold (35,000 units x $16 per unit) ...... Gross margin ............ Selling and administrative expenses .......... Net operating income....... ... $875,000 560,000 315,000 280,000 $ 35,000 The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows: Direct materials ........... Direct labor .............. Variable manufacturing overhead ........ Fixed manufacturing overhead ($160,000 = 40,000 units) ... Absorption costing unit product cost .... BISON Required: 1. Redo the company's income statement in the contribution format using variable costing. 2. Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above.

PROBLEM 6-19 Variable Costing Income Statement; Reconciliation (L06-2, L06-3] During Heaton Company's first two years of operations, the company reported absorption costing net operating income as follows: Sales (@$25 per unit) ........ Cost of goods sold (@$18 per unit) Year 1 $1,000,000 720,000 280,000 210,000 $ 70,000 Year 2 $1,250,000 900,000 350,000 230,000 $ 120,000 Gross margin ..... Selling and administrative expenses Net operating income ........... *$2 per unit variable: $130,000 fixed each year. The company's $18 unit product cost is computed as follows: Direct materials .......... Direct labor Variable manufacturing overhead .... Fixed manufacturing overhead ($270,000 = 45,000 units) .. Absorption costing unit product cost ........ Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder con- sists of depreciation charges on production equipment and buildings. Production and cost data for the two years are: Units produced.......... Units sold ............. Year 1 45,000 40,000 Year 2 45,000 50,000 Required: 1. Prepare a variable costing contribution format income statement for each year. 2. Reconcile the absorption costing and the variable costing net operating income figures for each year.

***The last person who answered, did not answer the questions in format. Please provide the answers for the required fields on the chart. Label the answers please or list them in a chart like the ones provided in the question.***

*CHECK NUMBERS; PLEASE PROVIDE AN EXPLAINATION FOR EACH AND ANSWER EACH PART FOR QUESTIONS #1-#3 WITH FORMULAS*

Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

Tami’s Creations, Inc.

Income Statement

For the Quarter Ended March 31
Sales (22,000 units) $ 798,600
Variable expenses:
Variable cost of goods sold $ 257,400
Variable selling and administrative expenses 176,000 433,400
Contribution margin 365,200
Fixed expenses:
Fixed manufacturing overhead 202,500
Fixed selling and administrative expenses 218,000 420,500
Net operating loss $ ( 55,300 )

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

At this point, Ms. Tyler is manufacturing only one product, a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced 25,000
Units sold 22,000
Variable costs per unit:
Direct materials $ 7.20
Direct labor $ 2.70
Variable manufacturing overhead $ 1.80
Variable selling and administrative

$

 8.00

Required:

1. Complete the following:

a. Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.)

Unit Product Cost:_______________

b. Redo the company’s income statement for the quarter using absorption costing. (Round your intermediate calculations to 2 decimal places.)
Tami’s Creations, Inc.
Absorption Costing Income Statement
Total
0
Net operating income (loss) $0

+

c. Reconcile the variable and absorption costing net operating income (loss) figures. (Round your intermediate calculations to 2 decimal places.)
Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes (Losses)
Variable costing net operating income (loss)
Absorption costing net operating income (loss)

+

3. During the second quarter of operations, the company again produced 25,000 units but sold 28,000 units. (Assume no change in total fixed costs.)

a. Prepare a contribution format income statement for the quarter using variable costing. (Round your intermediate calculations to 2 decimal places.)
Tami’s Creations, Inc.
Variable Costing Income Statement
Variable expenses:
0
0
Fixed expenses:
0
$0

+

b. Prepare an income statement for the quarter using absorption costing. (Round your intermediate calculations to 2 decimal places.)
Tami’s Creations, Inc.
Absorption Costing Income Statement
Total
0
$0

+

c. Reconcile the variable costing and absorption costing net operating incomes. (Round your intermediate calculations to 2 decimal places.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes (Losses)
Variable costing net operating income (loss)
Absorption costing net operating income (loss)

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