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Prol Name Alphabetical Number Section Oce Week M7 - Chapter 6 Homework Assignment Problem 1 (Supplemental Problem WI) - Prepare income statements under variable costing contribution margin formal) and absorption costing (traditional format) Costner Company uses an absorption costing system in accounting for the single product it manufactures. The following selected data are for the year 2013 Th Sales (10,000 units) Direct materials used in production (variable cost) Direct labor costs (variable cost) Variable manufacturing overhead Fixed manufacturing overhead Variable selling and administrative expenses Fixed selling and administrative expenses S360.000 S129,600 $ 43,200 S 12.960 $ 17,280 S 21.600 S 72.000 The company produced 12,000 units and sold 10,000 units. Direct materials and direct labor are variable costs. One unit of direct material goes into each unit of finished goods Overhead rates are based on a volume of 12.000 units and are S1.08 and S1.44 per unit for variable and fixed overhead, respectively. The ending inventory is the 2.000 units of finished goods on hand at the end of 2013. There was no inventory at the beginning of 2013 Hint: You must compute the cost of production per unit (12.000 units were produced in order to compute the cost of ending inventory (2,000 units remain in ending inventory at the end of the period). Units in Finished Goods Inventory Beginning + Produced -Sold Ending Required: a. Prepare an income statement for 2013 under variable costing. (Template has been provided on the next page) b. Prepare and income statement for 2013 under absorption costing. (Template has been provided on the next page). c. Explain the reason for the difference in net income between a and b. Answer to part C bolded below), Probler Ocean Requirement Costner Company Variable Casting Contribution Margin Income Statement For the year ended December 31 Sales Less: Variable cost of goods sold Direct materials Direct labor Manufacturing overhead Total production cost Less: Ending inventory cost Manufacturing margin Less: Variable selling and administrative expenses Contribution Margin (Sakes - MM - S&A) Less: Fixed costs Fixed manufacturing overhead Fixed selling and administrative Operating Income Requirement B Costner Company Traditional Income Statement For the year ended December 31 Saks Less: Cost of goods sold Direct materials Direct Libor Manufacturing overhead Total production cost Less Ending inventory cost Gross margin Less: Selling and administrative expenses Operating Income 1555 Problem 2 (Textbook Reference P6-3) - Decide whether to accept or reject a special order Cyan View Company operates our boats. Its predicted operations for the year are as follows: $ 400,000 Sales (1.000 tours per year) Variable Fived 5250 per tour S100.000 per year The company has received a request to offer 100 tours for 5.300 each. Ocean View has plenty of capacity to do these tours in addition to its repular business Doing these tours would not affect the company's regular sales or its fixed costs. Required: . Should the company do the special tours for 5300 per tour? ACCEPT REJECT? (circle your answer) 1 Sales revenue Less: Variable costs Contribution muren b. What is the effect of the decision on the company's operating profit? Problem 3 (Textbook Reference: 6-4) - Decide whether to accept or reject a special order Following are sales and other operating data for the three products made and sold by Ranger Company Product Total 1,100,000 5 200,000 $ 300.000 600.000 $ $ 5 140,000 600.000 60,000 280,000 $ $ 60,000 100.000 $ $ 20,000 220,000 $ Sales Manufacturing costs: Fixed Varile Selling and administrative costs Fhed Variable Total costs Net income (ass) 20,000 40.000 400,000 200.000 $ S $ $ 20,000 20.000 280.000 20.000 S S S 12,000 30.000 202.000 (2.000) $ S S S 52.000 90,000 882.000 218,000 In view of the net loss for Product C, Ranger's management is considering dropping that product. All variable costs are direct costs and would be eliminated if Product were dropped. Fixed costs are indirect costs, no fixed costs would be eliminated. Assume that the space used to produce Product C would be left idle. Required: a Would you recommend the elimination of Product C? Give supporting computations. Wine Clitheroe low to help you reach a conclusion! Remember to answer if you would keep or drop Product C Ranger Company Relevant Revenues and Costs of Altenatives Keep Product C Eliminate Product C Differential Rennes Expenses (al variable) Net advantage disadvantage of dropping product By how much would the company's overall net income increase or decrease if Product was eliminated? Pred Textbook Referener: 6-5) - Decide whether to process further or sell joint products Sierra Lumber Company produces lumber. The company has two grades of lumber at the split-off point, A and B Grade A sells for S4 per board foot and Grade B sells for $2 per board foot. This lumber is suitable for framing and most exterior work but ne for the interior of buildings. Either grade can be further processed to make it suitable for interior work at a cost of si 20 per board foot. After this further processing, the firm can sell Grade A lumber for 55.50 per board foot and Grade B for $10 per board foot Required: Would you recommend the company sell the lumber at the split off point or process it further to make it suitable for interior work Explain and give supporting computations Hint: wise the table below to help you reach a conclusiow! Grade B SIERRA LUMBER COMPANY Grade A Differential Revenue of Further Processing One Board Foot of Lumber Differential Costs of Further Processing One Board Foot of Lumber Net Advantage (disadvantage of Further Processing GRADE A: Sell at split-off OR Process further (circle your answer) GRADE B: Sell ar split-off OR Process further (circle your answer) Pros es Reference: P-6) - Decide whether to make or buy product Skais-Right Company, a skateboard manufacturer, is currently operating at capacity and producing about 8000 units a month. To use more capacity, the manager has been considering the research and development department's suggestion that the com munufacture its own wheels Currently the company cases whers from a supplier price of $20. Echis a towels forasteboard) Fstmas sho p ycan m e town s io for direct merials cost for direct labor permit The wide factory overhead is sl per unit. The company's accountants would probably allocate another 56 per unit to the wheels Required: Should Skate-Right make or buy the wheels SKATE RIGHT COMPANY Relevant Revenues and Expenses Make Differential Parchuset Direct labor Factory over Net advantage (disadvantage) of WHEELS: MAKE OR BUY (circle your answer) Suwa 4018

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