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# P22 - P22-6A TLR produces plastic that is used for...

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P22-6A TLR produces plastic that is used for injection molding applications such as gears for small motors. In 2010, the first year of operations, TLR produced 6,000 tons of plastic and sold 5,000 tones. In 2011, the production and sales results were exactly reversed. In each year, selling price per tone was \$1,000, variable manufacturing costs were 15% of the sales price of units produced, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were \$2,100,000, and fixed administrative expenses were \$500,000. Working: Variable manufacturing cost per unit: 15% of sales price =\$1000*15%=\$150 Variable selling price per unit:10% of units sold =\$1000*10%=\$100/unit sold Fixed manufacturing costs were \$2100,000 =\$2,100,000/6000 units=\$350/ unit The fully absorbed cost per unit would be: \$150+\$350=\$500 (a) Prepare comparative income statements for each year using variable costing. 2010 2011 \$ \$ \$ \$ Sales (5000*\$1000) 5,000,000 (6000*\$1000) 6,000,000 Opening inventory 0 150,000 Production (6000*\$150) 900,000 (5000*\$150) 750,000 Closing inventory (1000*150) (150,000) 0 Variable production cost of sales (750,000) (900,000)

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Contribution 4,250000 5,100,000 Fixed manufacturing costs (2,100,000) (2,100,000)
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