P6-20 Advance
Products, Inc., has just organized a new division to manufacture and sell
specially
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . $86
Variable manufacturing overhead . . . . . . . . . . $4
Fixed manufacturing overhead costs (total) . . . . $240,000
Selling and administrative costs:
Variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% of sales
Fixed (total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000
Units sold . . . . . . . . . . . . . . 3,200
a. Absorption costing.
b. Variable costing.
2. Prepare an income statement for the month using absorption costing.
3. Prepare a contribution format income statement for the month using variable costing.
4. Assume that the company must obtain additional financing. As a member of top management, which of the statements that you have prepared in (2) and (3) above would you prefer to take with you to negotiate with the bank? Why?
5. Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.
P6-20 Advance
Products, Inc., has just organized a new division to manufacture and sell
specially designed tables using select hardwoods for personal computers. The
division’s monthly costs are shown in the schedule below:
Manufacturing costs:
Variable costs per
unit:Direct materials . . . . . . . . . . . . . . . . . . . . . . . . $86
Variable manufacturing overhead . . . . . . . . . . $4
Fixed manufacturing overhead costs (total) . . . . $240,000
Selling and administrative costs:
Variable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15% of sales
Fixed (total) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000
Advance Products
regards all of its workers as full-time employees and the company has a
long-standing no-layoff policy. Furthermore, production is highly automated.
Accordingly, the company includes its labor costs in its fixed manufacturing
overhead. The tables sell for $250 each.
During the first
month of operations, the following activity was recorded:
Units produced . . .
. . . . . . . 4,000Units sold . . . . . . . . . . . . . . 3,200
Required:
1. Compute the unit
product cost under:a. Absorption costing.
b. Variable costing.
2. Prepare an income statement for the month using absorption costing.
3. Prepare a contribution format income statement for the month using variable costing.
4. Assume that the company must obtain additional financing. As a member of top management, which of the statements that you have prepared in (2) and (3) above would you prefer to take with you to negotiate with the bank? Why?
5. Reconcile the absorption costing and variable costing net operating incomes in (2) and (3) above.
TUTORIAL PREVIEW
ADVANCE PRODUCTS,
INC
Units Product Cost
|
||
Absorption
Costing
|
Variable
Costing
|
|
Direct materials
|
$ 86
|
$
86
|
Variable manufacturing
overhead
|
4
|
4
|
File name: P6-20 Advance Products.xls File type: .xls PRICE: $10
