17 pages


Please download to get full document.

View again

of 17
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
dallas equation
  Demo 6-1: Prepare & Reconcile Variable & Absorption Costing Income Statements -- Production Const Sales Variesi!en: Linden Company manufactures and sells a single product. Cost data for the product follow:Variable costs per unit:Direct materials 6#$$ Direct labor  1%#$$ Variable factory overhead #$$ %%#$$ Variable selling & administrative '#$$ Total variable costs per unit %(#$$ Fied costs per month:Fied manufacturing overhead %$,$$$ )#$$ Fied selling & administrative 1)$,$$$ Total fied cost per month %$,$$$ '$#$$ 1(#$$ !roduction and sales data for ay and #une$ the first two months of operations$ are as follows: $#$$ *nits*nitsC+ange inProducedSoldIn!entor ay '$,$$$ %6,$$$ %$ #une '$,$$$ ',$$$ '%$(Total 6$,$$$ 6$,$$$  presented below: a.une )ales 1,$$,$$$ 1,'6$,$$$ Cost of goods sold*eginning inventory $ 1%$,$$$ +,-$ dd cost of goods manufactured /$$,$$$ /$$,$$$ +/$+/$0oods available for sale /$$,$$$ 1,$%$,$$$ Less ending inventory 1%$,$$$ $ +,-$ Cost of goods sold+12$ 0)$,$$$ 1,$%$,$$$ +,$-$0ross margin %6$,$$$ '$,$$$ )elling & administrative epenses %(),$$$ %)%,$$$ +-32$+-2-$4perating income %,$$$ (),$$$ Reuired:1#Determine t+e unit product cost under:a#Absorption costingb#Variable costing  bsorptionVariableCostingCostingDirect materials 6#$$ 6#$$ Direct labor  1%#$$ 1%#$$ The product sells for $  per unit. 5ote: Contribution margin per unit is 6ncome statements prepared by the accounting department$ using absorption costing$ are  Variable manufacturing overhead #$$ #$$ Fied manufacturing overhead '+-%$78$(2. +8. +--. %#Prepare !ariable costing income statements 2or a and .une using t+econtribution margin 2ormat approac+# Linden CompanyVariable Costing 6ncome )tatementsFor the onths of ay and #une ay#une)ales '-9$  +%; 8%$  +%( 1,$$,$$$ 1,'6$,$$$ Variable epenses:Variable cost of goods sold31-$ +31-$ +1%2$ 1%2$ Variable selling & administrative12$ 12$ ,-$ ,-$ Total variable epenses+93$ +23$ Contribution margin 1(#$$ +8/$ +3,$ Fied epenses:8/$ 3,$ Fied manufacturing overhead %$,$$$ %$,$$$ Fied selling & administrative 1)$,$$$ 1)$,$$$ Total fied epenses %$,$$$ %$,$$$ 4perating income 'loss('+8$(+/$ '#Reconcile t+e !ariable costing and absorption costing net operating income 2igures ay#une4perating variable costing income 'loss('+8$(+/$  d<ustment for Change in inventory during ay!roduction '$,$$$ )ales %6,$$$ 6ncrease in inventory%$ Fied 4= rate+2. Fied + deferred in inventory+8-$ 8-$ 3perating absorption costing income 4loss5 %,$$$  d<ustment for Change in inventory during #une!roduction '$,$$$ )ales ',$$$ Decrease in inventory'%$(Fied 4= rate+2. Fied + released from inventory'+8-$('8-$( 3perating absorption costing income 4loss5 (),$$$ #+e compan7s Accounting Department +as determined t+e brea8-e!en point to be 4 $ - %(5 9 1( *pon recei!ing t+is 2igure, t+e president commented, +ere7s somet+ing strange +ere#+e controller sas t+at t+e brea8-e!en point is %),$$$ per mont+# ;et <e sold onl%),$$$ units per mont+, computed as 2ollo<s:=i>ed cost per mont+?*nit contribution margin 9 %$,$$$ ? 1( per unit 9 %),$$$ units %6,$$$ units in a, and t+e income statement <e recei!ed s+o<ed a %,$$$ pro2it#  @+ic+ 2igure do <e belie!e Prepare a brie2 e>planation o2 <+at +appened on t+e aincome statement# The brea>?even analysis above assumes that all of Linden Company@s +%-$ of monthly fiedcosts will be recogniAed as epenses each month in its monthly income statements. 6f LindenCompany uses a variable costing approach to measuring operating income$ then this assumption will hold true. =owever$ if the absorption costing approach is used to measure operating income$this assumption will hold true only when production is eBual to sales. 6n ay$ production wasgreater than sales by %$ units. Therefore$ +8-$ '%$  +2( of fied 4= costs was deferred in ending inventory to future periods. This +8-$ of deferred fied 4= costs will berecogniAed in future periods as epense items when the inventory units to which these costs areassigned are sold. Fewer units need to be sold to *7 since recogniAed fied costs are +8-$less.Current sales %6,$$$#$$ *7  '+%-$ ? +8-$(7+,3 -3$299.91 )ales greater than *7,88.88 C per unit sold 1(#$$ 4perating income ?? -9$ sales %,$$$#$$ Thus$ both are correct depending on underlying assumptions. 5ormal *7 analysis assumes production  sales. This assumption eBuates operating incomemeasured under variable costing with operating income measured under absorption costing.)ince production is greater than sales during ay$ operating income is greater when measuredusing an absorption costing approach than when using a variable costing approach.   ant,
Related Documents
View more...
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks

We need your sign to support Project to invent "SMART AND CONTROLLABLE REFLECTIVE BALLOONS" to cover the Sun and Save Our Earth.

More details...

Sign Now!

We are very appreciated for your Prompt Action!