Week
10 Principles of accounting week P10-2 P10-10
P10-12R
P10-2 Absorption
costing versus direct costing
P10-2 Haille
Corporation has determined the following selling price and manufacturing cost
per unit based on normal production of 72,000 units per year:
Selling
price per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . $ 22
Variable
cost per unit:
Direct
materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . $ 4
Direct
labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . 4
Variable
factory overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . 2
Variable
cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . $ 10
Fixed
cost per unit:
Fixed
factory overhead per year . . . . . . . . . . . . . . . . . . . . . . . . . . .
. $ 360,000
Fixed
selling and administrative expense per year . . . . . . . . . . . 48,000
Normal
unit production per year . . . . . . . . . . . . . . . . . . . . . . . . . . .
72,000
Month
Units Produced Units Sold
October
. . . . . . . . . . . . . . . . . . . . . . 6,000 3,000
November
. . . . . . . . . . . . . . . . . . . . 1,000 4,000
December
. . . . . . . . . . . . . . . . . . . . 8,000 6,000
October
has no beginning inventories.
Required:
Prepare
comparative income statements, including a comparative schedule of cost of
goods sold, for each of these three months in 2011 under each of the following:
1.
Absorption costing (include under- or overapplied overhead).
2.
Variable costing.
P10-10 Effect of
taxes on break-even and target volume
P10-10 McDormand Products,
Inc., desires an after-tax income of $500,000.
It
has fixed costs of $2,500,000, a unit sales price of $300, and unit variable
costs of $150, and is in the 40% tax bracket.
Required:
1.
What amount of pre-tax income is needed to earn an after-tax income of
$500,000?
2.
What target volume sales revenue must be reached to earn the $500,000 after-tax
income?
3.
Assuming that this is a single-product firm, how many units must be sold to
earn the after-tax income of $500,000?
4.
What target volume sales revenue would have been needed to achieve the $500,000
of income had no income tax existed?
P10-12R Comprehensive
Review Problem: Break-even point; absorption and variable cost analysis similar
to Self-Study Problem 1
P10-12R Tarbell
Manufacturing Company has a maximum productive capacity of 210,000 units per
year. Normal
capacity is 180,000 units per year. Standard variable manufacturing costs are
$10 per unit. Fixed factory overhead is $360,000 per year. Variable selling
expense is $5 per unit, and fixed selling expense is $252,000 per year. The
unit sales price is $20.
The
operating results for the year are as follows: sales, 150,000 units;
production, 160,000 units; beginning inventory, 10,000 units. All variances are
written off as additions to (or deductions from) the standard cost of sales.
Required:
1.
What is the break-even point expressed in dollar sales?
2.
How many units must be sold to earn a net operating income of $100,000 per
year?
3.
Prepare a formal income statement for the year ended December 31, 2011 under
the following:
a.
Absorption costing. (Hint: Don’t forget to compute the volume variance.)
b. Variable costing.
Haille
Corporation
|
||||||
Comparative
Income Statements
|
||||||
For
the Three Months Ending December 31, 20xx
|
||||||
October (3,000 units sold)
|
November (4,000 units sold)
|
December (6,000 units sold)
|
||||
Absorption Costing
|
Variable Costing
|
Absorption Costing
|
Variable Costing
|
Absorption Costing
|
Variable Costing
|
|
Sales
|
$
66,000
|
$
66,000
|
$
88,000
|
$
88,000
|
$
132,000
|
$
132,000
|
Less: Cost of goods sold
|
43,500
|
30,000
|
58,000
|
40,000
|
87,000
|
60,000
|
Under/ over applied factory
overhead
|
22,500
|
(9,000)
|
||||
