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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 StatementConsumer 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 companys 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.)

Managerial Accounting 1BFinancial
and Managerial AccountingChapter 191.Exercise 19-1 Income reporting under absorption costing and
variable costing L.O. P2Adams 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 “$” sign in your response.)3.Under what circumstance(s) is
reported income identical under both absorption costing and variable costing? Exercise 19-4 Income reporting under absorption costing and
variable costing L.O. P2[The following information applies to the questions displayed
below.]Woodson Company, a producer of
solid oak tables, reports the following data from its current year
operations, which is its second year of business. 2.Exercise 19-4 Part
11.Prepare the current year income
statement for the company using absorption costing.(Input all amounts as positive values except net loss which
should be indicated with a minus sign. Leave no cells blank – be certain to
enter “0” wherever required. Omit the “$” sign in
your response.) 3.Exercise 19-4 Part
22.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, P4Lyon 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.
P3Polarix 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 StatementConsumer 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. C2Rourke 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$720,000 in total If Rourke increases its production
to 80,000 units, while sales remain at the current 60,000 unit level, by how
much would the companys gross margin increase or decrease under absorption
costing? Assume the company has idle capacity to double current production.(Omit the
“$” sign in your response.) Gross margin7.Problem 19-1A
Variable costing income statement and conversion to absorption costing income
L.O. P2, P4Torres 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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