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Variable and Absorption Costing

Summarized data for $2019($the first year of operations$)$ for Trenton Products, Inc., are as follows:

Sales $(100,000$ units$)$ $$8,000,000$

Production costs $(105,000$ units$)$

Direct material $2,100,000$

Direct labor $1,680,000$

Manufacturing overhead:

Variable $1,260,000$

Fixed $1,050,000$

Operating expenses:

Variable $560,000$

Fixed $640,000$

a$.$ Prepare an income statement based on full absorption costing.

Only use a negative sign with your answer for net income $($loss$),$ if the answer represents a net loss. Otherwise, do not use negative signs with any answers. Round answers to the nearest whole number, when applicable.

Absorption Costing Income Statement

Sales Answer

Cost of Goods Sold:

Beginning Inventory Answer

Direct materials Answer

Direct labor Answer

Answer

Answer

Less: Ending Inventory Answer

Cost of Goods Sold Answer

Answer

Answer

Answer

Answer

Net Income $($Loss$)$ Answer

b$.$ Prepare an income statement based on variable costing.

Only use a negative sign with your answer for net income $($loss$),$ if the answer represents a net loss. Otherwise, do not use negative signs with any answers. Round answers to the nearest whole number, when applicable.

Variable Costing Income Statement

Sales Answer

Variable cost of Goods Sold:

Beginning Inventory Answer

Direct materials Answer

Direct labor Answer

Answer

Answer

Less: Ending Inventory Answer

Variable cost of goods sold Answer

Answer

Answer

Answer

Answer

Fixed costs:

Answer

Answer

Operating expenses Answer

Total Fixed Cost Answer

Net Income $($Loss$)$ Answer

c$.$ Assume that you must decide quickly whether to accept a special one$-$time order for $1,000$ units for $$56$ per unit.

Which income statement presents the most relevant data? Answer

Determine the apparent profit or loss on the special order based solely on these data.

Use a negative sign with your answer if the special order creates an apparent loss. Round answer to the nearest whole number.

$Answer

d$.$ If the ending inventory is destroyed by fire, which costing approach would you use as a basis for filing an insurance claim for the fire loss? Why?

Select the most appropriate statement.

Absorption costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

Variable costing approach because the cost should include a reasonable portion of fixed manufacturing costs.

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