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# During the year zavod produced 11000 units and sold

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During the year, Zavod produced 11,000 units and sold 10,000 units at \$32 each. All variable costs were exactly as expected on a per unit basis, and all fixed costs were exactly as expected in total. Zavod's president has asked the controller to prepare an income statement under absorption costing and an income statement under variable costing. REQUIRED: 1. Explain how absorption costing and variable costing methods treat the following costs: a. Direct materials. b. Direct labor. c. Variable overhead. d. Fixed overhead. e. Variable selling and administrative. f. Fixed selling and administrative. 2. a. Calculate the unit cost to be used in valuation of the ending inventory under absorption costing. Show your calculations. b. Calculate the unit cost to be used in valuation of the ending inventory under variable costing. Show your calculations. 3. a. Calculate operating income using absorption costing. Show your calculations. b. Calculate operating income using variable costing. Show your calculations. 4. Explain why operating income calculated under absorption costing differs from operating income calculated under variable costing. 5. a. Explain why absorption costing is required under U.S. GAAP. b. Explain why variable costing is more appropriate for management decision-making.

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345 CMA Part 2 Essay Practice Questions (Answers are below) Question: 2.1 – Foyle Inc. Foyle Inc. has prepared the comparative income statements for the three most recent fiscal years that are shown below. While profitable, Foyle has been losing market share and is concerned about future performance. Also presented are data about Foyle’s largest competitor and the industry average. Year 1 Year 2 Year 3 Competitor Ind. Avg. Revenue \$20,000 \$24,000 \$30,000 \$45,000 \$28,000 Cost of goods sold 12,000 12,000 18,000 21,600 14,000 Gross profit 8,000 12,000 12,000 23,400 14,000 Sales and marketing 2,000 2,000 2,000 5,000 3,000 General and administrative 1,500 2,000 3,000 3,150 2,500 Research and development 1,500 2,000 1,000 4,000 1,500 Operating income \$ 3,000 \$ 6,000 \$ 6,000 \$11,250 \$ 7,000 REQUIRED: 1. Using the three Foyle Inc. statements, a. Prepare a comparative common-size statement using revenue as the base measure. b. Prepare a common base-year income statement using Year 1 as the base year. Show your calculations. 2. Calculate Foyle’s growth rate of both revenue and operating income for Year 2 and Year 3. Show your calculations. 3. By evaluating Foyle’s performance against the performance of Foyle’s largest competitor and the industry average, identify and discuss three areas that Foyle should target for further investigation and performance improvement. Support your discussion with data.
346 Question: 2.2 – Bockman Industries Income statements for Bockman Industries, a retailer, are shown below for the past two years. Year 2 Year 1 Revenues \$6,400,000 \$6,000,000 Cost of goods sold 3,100,000 2,850,000 Gross margin 3,300,000 3,150,000 Selling expenses 950,000 880,000 Administrative expenses 1,120,000 1,050,000 Loss due to strike 20,000 0 Interest expense 30,000 30,000 Income before taxes 1,180,000 1,190,000 Income tax expense 472,000 476,000 Income from continuing operations 708,000 714,000 Discontinued operations, net 72,000 0 Net income \$ 780,000 \$ 714,000 Earnings per share \$2.50 \$2.30 REQUIRED: 1.

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