525000 525000 525000 490000 525000 532000 g 800 1350

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$525,000 – $525,000; $525,000 – $490,000; $525,000 – $532,000g $800 × 1,350; $800 × 1,400; $800 × 1,5309-7
in 2017, its first year of operation. Variable manufacturing cost was $19 per unit produced. Variable operating (nonmanufacturing) costwas $13 per unit sold. Planned and actual fixed manufacturing costs were $750,000. Planned and actual fixed operating(nonmanufacturing) costs totaled $420,000. Miami sold 170,000 units of product at $41 per unit.Required:1.Miami’s 2017 operating income using absorption costing is (a) $600,000, (b) $360,000, (c) $780,000, (d) $1,020,000, or (e) none
2.Miami’s 2017 operating income using variable costing is (a) $1,100,000, (b) $600,000, (c) $360,000, (d) $780,000, or (e) none ofthese. Show supporting calculations.SOLUTION(10 min.) Absorption and variable costing.The answers are 1(a) and 2(c). Computations:1. Absorption Costing:RevenuesaCost of goods sold:Variable manufacturing costsbAllocated fixed manufacturing costscGross margin$3,230,000510,000$6,970,0003,740,0003,230,000Operating costs:Variable operatingdFixed operatingOperating income2,210,000420,0002,630,000$ 600,000a$41 × 170,000b $19 × 170,000c Fixed manufacturing rate = $750,000 ÷ 250,000 = $3 per output unitFixed manufacturing costs allocated to goods sold = $3 × 170,000d $13 × 170,0009-9
2. Variable Costing:RevenueseVariable costs:Variable manufacturing cost of goods soldfVariable operating costsgContribution marginFixed costs:Fixed manufacturing costsFixed operating costsOperating income$3,230,0002,210,000750,000420,000$6,970,0005,440,0001,530,0001,170,000$ 360,000e$41 × 170,000f$19 × 170,000g$13 × 170,0009-27Absorption versus variable costing. Horace Company manufactures a professional-grade vacuum cleaner and beganoperations in 2017. For 2017, Horace budgeted to produce and sell 25,000 units. The company had no price, spending, or efficiency9-10
variances and writes off production-volume variance to cost of goods sold. Actual data for 2017 are given as follows:Required:1.Prepare a 2017 income statement for Horace Company using variable costing.2.Prepare a 2017 income statement for Horace Company using absorption costing.3.Explain the differences in operating incomes obtained in requirements 1 and 2.4.Horace’s management is considering implementing a bonus for its supervisors based on gross margin under absorption costing.What incentives will this bonus plan create for the supervisors? What modifications could Horace management make to improvesuch a plan? Explain briefly.SOLUTION(40 min) Absorption versus variable costing.1. The variable manufacturing cost per unit is $33 + $23 + $62 = $118. 2017 Variable-Costing Based Income Statement9-11
Revenues (18,500 $432 per unit)$7,992,000Variable costsBeginning inventory$ 0Variable manufacturing costs (21,000 units $118 per unit)2,478,000

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