The Madison Corporation has two identical divisions: Eastern and Southern. Their sales, production volume, and fixed manufacturing costs have been the same for both divisions for the last five years and that information for each are as follows:
Year 1
Year 2
Year 3
Year 4 year 5
Units produced
100,000
100,000
100,000
100,000
100,000
Units sold
80,000
90,000
110,000
100,000
115,000
Fixed manufacturing costs
$500,000
$500,000
$500,000
$500,000
500,000
Eastern uses absorption costing and Southern uses variable costingand southern uses variable costing. Both use FIFO inventory methods. Variable manufacturing cost are $10 per unit. Both have identicals selling prices and selling and administrative expenses. There were no Year 1 beginning inventories.
Determine the difference in profits for each division for Years 1 through 5. explain why profits differ betweeen two divisions.
The Madison Corporation has two identical divisions: Eastern and Southern. Their sales, production volume, and fixed manufacturing costs have been the same for both divisions for the last five years and that information for each are as follows:
| Year 1 | Year 2 | Year 3 | Year 4 year 5 | ||
| Units produced | 100,000 | 100,000 | 100,000 | 100,000 | 100,000 |
| Units sold | 80,000 | 90,000 | 110,000 | 100,000 | 115,000 |
| Fixed manufacturing costs | $500,000 | $500,000 | $500,000 | $500,000 | 500,000 |
Eastern uses absorption costing and Southern uses variable costingand southern uses variable costing. Both use FIFO inventory methods. Variable manufacturing cost are $10 per unit. Both have identicals selling prices and selling and administrative expenses. There were no Year 1 beginning inventories.
Determine the difference in profits for each division for Years 1 through 5. explain why profits differ betweeen two divisions.
Related questions
The Grand Rapid Corporation has two identical divisions: Westernand Northern. Their sales, production volume, and fixedmanufacturing costs have been the same for both divisions for thelast five years and are as follows:
| Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | |
| Units Produced | 50000 | 50000 | 50000 | 50000 | 50000 |
| Units Sold | 40000 | 45000 | 55000 | 50000 | 55000 |
| Fixed MFG Costs | 250000 | 250000 | 250000 | 250000 | 250000 |
Western uses absorption costing and Northern uses variablecosting. Both use FIFO inventory methods. Variable manufacturingcosts are $5 per unit. Both have identical selling prices andselling and administrative expenses. There were no Year 1 beginninginventories.
Determine the difference in profits for each division for Years1 through 5. Explain why profits differ between the twodivisions.
Bracey Company manufactures and sells one product. The followinginformation pertains to the companyâs first year of operations:
| Variable cost per unit: | ||
| Direct materials | $ | 31 |
| Fixed costs per year: | ||
| Direct labor | $ | 429,000 |
| Fixed manufacturing overhead | $ | 421,200 |
| Fixed selling and administrative expenses | $ | 72,000 |
The company does not incur any variable manufacturing overheadcosts or variable selling and administrative expenses. During itsfirst year of operations, Bracey produced 26,000 units and sold23,900 units. The selling price of the companyâs product is $70 perunit.
Required:
1. Assume the company uses super-variable costing:
a. Compute the unit product cost for the year.
b. Prepare an income statement for the year.
2. Assume the company uses a variable costing system thatassigns $16.50 of direct labor cost to each unit produced:
a. Compute the unit product cost for the year.
b. Prepare an income statement for the year.
3. Assume the company uses an absorption costing system thatassigns $16.50 of direct labor cost and $16.20 of fixedmanufacturing overhead cost to each unit produced:
a. Compute the unit product cost for the year.
b. Prepare an income statement for the year.
4a. Reconcile the difference between the super-variable costingand variable costing net operating incomes.
4b. Reconcile the difference between the super-variable costingand absorption costing net operating incomes.
