KESSLER CORPORATION
The KESSLER CORPORATION is a brand new company as of January 1, 2017. It sells chairs for $300 per unit. The following data are related to 2017:
Sales 100 chairs
Production 100 chairs
Total Costs
Variable manufacturing (based on production)
Direct materials $1000
Direct labor 2000
Variable overhead 3000 $6000
Fixed manufacturing 8000
Variable Selling & Administrative costs (based on sales) 3,200
Fixed Selling & Administrative costs 2,000
Note: There are no ending balances in Direct Materials, Work in Process, or Finished Goods.
REQUIRED:
1. Prepare an income statement for 2017, using absorption costing (traditional format).
2. Prepare an income statement for 2017, using variable costing (contribution margin format).
3. Explain under what circumstances a company should use one statement versus the other.
KESSLER CORPORATION
The KESSLER CORPORATION is a brand new company as of January 1, 2017. It sells chairs for $300 per unit. The following data are related to 2017:
Sales 100 chairs
Production 100 chairs
Total Costs
Variable manufacturing (based on production)
Direct materials $1000
Direct labor 2000
Variable overhead 3000 $6000
Fixed manufacturing 8000
Variable Selling & Administrative costs (based on sales) 3,200
Fixed Selling & Administrative costs 2,000
Note: There are no ending balances in Direct Materials, Work in Process, or Finished Goods.
REQUIRED:
1. Prepare an income statement for 2017, using absorption costing (traditional format).
2. Prepare an income statement for 2017, using variable costing (contribution margin format).
3. Explain under what circumstances a company should use one statement versus the other.
Related questions
Your Company manufactures and sells one product. The sellingprice per unit is $80 per unit. The following pertains to thecompany's first year of operations in which it produced 40,000 andsold 35,000 units.
Variable costs: | |
Manufacturing: | |
Direct materials | 960,000 |
Direct labor | 560,000 |
Variable manufacturing overhead | 80,000 |
Variable selling | 140,000 |
Fixed Costs per year: | |
Fixed manufacturing | 840,000 |
Fixed selling and administrative | 490,000 |
Instructions: | |
1.Using the above information prepare | |
an income statement in the traditional | |
format. | |
2. Prepare an income statement in the | |
contribution format. | |
3. Compute the unit cost under absorption costing. | |
4. Compute the unit cost under variable costing. | |
5. Compute the contribution margin per unit. | |
6. Compute the contribution margin ratio | |
7. There is a difference in the net income using one | |
statement versus the other; explain the | |
cause of the difference? | |
| 8. Compute the breakeven sales in units 9. Compute the breakeven sales dollars. |
The information below representsthe beginning and ending inventory amounts along with theproduction and sales for the month in umbrella units
Beginning Inventory: 0 Umbrellas
Production: 80,000 Umbrellas
Sales: 60,000 Umbrellas
Ending Inventory: 20,000 Umbrellas
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Using the information
Prepare a variable costing income statement.
Prepare an absorption costing income statement.
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead:$0.40
Variable Selling Expenses: $1.10
| Requirement 1 | ||||
| Hampshire Company | ||||
| Variable Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Variable Costs of GoodsSold | $ | |||
| Variable Selling Costs | X | $ | $ | $ |
| Contribution Margin | $ | |||
| Fixed Costs: | ||||
| Fixed Manufacturing Costs | $ | |||
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
| Requirement 2 | ||||
| Hampshire Company | ||||
| Absorption Costing IncomeStatement | ||||
| Units | $ | |||
| Sales | X | $ | $ | |
| Variable Cost of Goods Sold: | ||||
| Beginning Inventory | $ | |||
| Direct Materials | X | $ | $ | |
| Direct Labor | X | $ | $ | |
| Manufacturing Overhead | X | $ | $ | |
| Total Variable Costs | $ | |||
| Allocated Fixed Manufacturing Costs | X | $ | $ | |
| Cost of Good Available for Sale | $ | |||
| Deduct Ending Inventory | X | $ | $ | |
| Costs of GoodsSold | $ | |||
| Gross Margin | $ | |||
| Fixed Costs: | ||||
| Variable Selling Costs | X | $ | $ | |
| Fixed Administrative Costs | $ | |||
| Operating Income | $ | |||
The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:
| Beginning inventory | 0 | |
| Units produced | 34,000 | |
| Units sold | 25,900 | |
| Selling price per unit | $ | 482 |
| Selling and administrative expenses: | ||
| Variable per unit | $ | 16 |
| Fixed per year | $ | 362,600 |
| Manufacturing costs: | ||
| Direct materials cost per unit | $ | 240 |
| Direct labor cost per unit | $ | 56 |
| Variable manufacturing overhead cost per unit | $ | 34 |
| Fixed manufacturing overhead per year | $ | 578,000 |
Assume that direct labor is a variable cost.
Required:
a. Compute the unit product cost under both the absorption costing and variable costing approaches.
b. Prepare an income statement for the year using absorption costing.
c. Prepare an income statement for the year using variable costing.
d. Reconcile the absorption costing and variable costing net operating income figures in (b) and (c) above.
