Chapter 6 Selected Problems - Exercise612(continued) 2 b.

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Exercise 6-12  (continued) 2 b. The absorption costing income statements appears below: Year 1 Year 2 Sales $2,000,000 $2,500,000 Cost of goods  sold *1,600,000 **2     ,040,000     Gross margin 400,000 460,000 Selling and  administrative  expenses         200,000             2    30,000     Net operating  income $        200,000     $        230,000     * 40,000 units × $40 per unit = $1,600,000 ** (40,000 units × $41 per unit) + (10,000 units × $40 per unit) =  $2,040,000 3. The net operating incomes are reconciled as follows: Year 1 Year 2 Variable costing net operating income (loss) $   160,000 $   270,000 Add: Fixed manufacturing overhead cost  deferred in inventory under absorption  costing (10,000 units × $4 per unit). ........... 40,000 Deduct: Fixed manufacturing overhead cost  released from inventory under absorption  costing (10,000 units × $4 per unit). ...........                                         (40,000     ) Absorption costing net operating income. ..... $            200,000     $          230,000     Exercise 6-13  (20 minutes) 1. Sales (40,000 units × $33.75 per unit). ............ $1,350,000 Variable expenses: Variable cost of goods sold  (40,000 units × $16 per unit*). .................... $640,000
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Variable selling and administrative expenses  (40,000 units × $3 per unit). ........................   120,000           760,000     Contribution margin. ......................................... 590,000 Fixed expenses: Fixed manufacturing overhead. ..................... 250,000 Fixed selling and administrative expenses. ...   300,000             550,000     Net operating income. ...................................... $            40,000     * Direct materials. . $10 Direct labor. ........ 4 Variable  manufacturing  overhead. ........       2    Total variable  manufacturing  cost. ................. $16 2. The difference in net operating income can be explained by the $50,000  in fixed manufacturing overhead deferred in inventory under the  absorption costing method: Variable costing net operating income. ............................. $40,000 Add fixed manufacturing overhead cost deferred in  inventory under absorption costing (10,000 units × $5  per unit in fixed manufacturing overhead cost). .............   50,000     Absorption costing net operating income. ........................ $90,000 Exercise 6-14  (20 minutes) 1. $75,000 × 40% CM ratio = $30,000 increased contribution margin in  Dallas. Because the fixed costs in the office and in the company as a  whole will not change, the entire $30,000 would result in increased net  operating income for the company. It is incorrect to multiply the $75,000 increase in sales by Dallas’ 25% 
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This note was uploaded on 11/20/2011 for the course ACCOUNTING 2302 taught by Professor Adams during the Spring '11 term at University of Houston.

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Chapter 6 Selected Problems - Exercise612(continued) 2 b.

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