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Unformatted text preview: Julio Garcia Tuesdays @ 6:00pm Text Problem 9-33 Comparison of Variable and Absorption Coating Income Statement for 2003 using Variable Costing: Sales 25,000,000 x $2.00 50,000,000.00 Production Costs: Variable 30,000,000 x $1.00 30,000,000.00 Fixed 8,400,000.00 38,400,000.00 Ending Inventory 5,000,000 units 5,000,000.00 Cost of Goods Sold 33,400,000.00 Gross Margin 16,600,000.00 Marketing, Distribution, Customer Service costs: Variable 12,500,000.00 Fixed 4,100,000.00 16,600,000.00 Operating Income 0.00 Absorption Costing: Sales 20,000,000 x $2.00 40,000,000.00 Production Costs: Variable 15,000,000 x $1.00 15,000,000.00 Fixed 8,400,000.00 23,400,000.00 Ending Inventory 5,000,000 units 6,400,000.00 Cost of Goods Sold 29,800,000.00 Gross Margin 10,200,000.00 Marketing, Distribution, Customer Service costs: Variable 10,000,000.00 1- As a member of the board, I would raise the problems that surface when using Absorption Costing in order to measure Net Income. I w members that the use of absorption costing was the only reason the new president's plan was able to generate a net income of $1,400,00 recognition of the fixed costs allocated to the remaining 5,000,000 units of Inventory, the new president simply moved $1,400,000 of cost o...
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- Spring '08
- Financial Accounting