Dilithium Batteries is a division of Enterprise Corporation. The division manufactures and sells a long-life battery used in a wide variety of applications.
P6-8A Dilithium Batteries is a division of Enterprise Corporation. The division manufactures and sells a long-life battery used in a wide variety of applications. During the coming year it expects to sell 60,000 units for $30.00 per unit. Nyota Uthura is the division manager. She is considering producing either 60,000 or 90,000 units during the period. Other information is presented in the schedule.
P6-8A
Dilithium Batteries is a division of Enterprise Corporation. The division
manufactures and sells a long-life battery used in a wide variety of
applications. During the coming year it expects to sell 60,000 units for $30.00
per unit. Nyota Uthura is the division manager. She is considering producing
either 60,000 or 90,000 units during the period. Other information is presented
in the schedule.
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Division Information for 2014
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Beginning inventory
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0
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Expected sales in units
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60,000
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Selling price per unit
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$30.00
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Variable manufacturing costs per unit
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$12.00
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Fixed manufacturing overhead costs (total)
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$540,000
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Fixed manufacturing overhead costs per unit:
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Based on 60,000 units ($540,000 ÷ 60,000 units)
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$9.00
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Based on 90,000 units ($540,000 ÷ 90,000 units)
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$6.00
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Manufacturing cost per unit:
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Based on 60,000 units ($12.00 variable + $9.00
fixed)
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$21.00
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Based on 90,000 units ($12.00 variable + $6.00
fixed)
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$18.00
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Variable selling and administrative expenses
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$2.00
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Fixed selling and administrative expenses (total)
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$50,000
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Instructions
(a) Prepare
an absorption costing income statement, with one column showing the results if 60,000
units are produced and one column showing the results if 90,000 units are
produced.
(b) Prepare
a variable costing income statement, with one column showing the results if 60,000
units are produced and one column showing the results if 90,000 units are
produced.
(c)
Reconcile the difference in net incomes under the two approaches and explain
what accounts for this difference.
(d) Discuss
the relative usefulness of the variable costing income statements versus the
absorption costing income statements for decision making and for evaluating the
manager’s performance.
TUTORIAL
PREVIEW
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DILITHIUM BATTERIES DIVISION
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Income Statement
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For the Year Ended December 31, 2014
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Absorption Costing
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60,000
Produced |
90,000
Produced |
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Sales (60,000 units x $30)
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$1,800,000
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$1,800,000
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Cost of goods sold (60,000 units x $21)
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1,260,000
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(60,000
units x $18)
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1,080,000
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File name: P6-8A Dilithium.xls File type: .xls PRICE: $9
