For 2020 Vision budgeted to produce 5000 frames units Assume a beginning

For 2020 vision budgeted to produce 5000 frames units

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The Vision Company produces an entry-level eyewear frame. For 2020 Vision budgeted to produce 5,000 frames (units). Assume a beginning inventory of 1,000 units and assume that the unit product cost for beginning inventory is the same as the current period unit product cost. Also, assume no price, efficiency, or spending variances. Any production volume variance is written off to cost of goods sold in the period it is incurred. Actual data for 2020 are given as follows: Units produced Units sold Selling price Variable costs: 5,500 4,000 $45 Manufacturing cost per unit produced Direct materials $6.00 Direct manufacturing labor Manufacturing overhead 4.00 3.00 Marketing cost per unit sold 8.00 Fixed costs: Manufacturing costs Administrative and Marketing costs $25,000 12,000 Required: a) Prepare a 2020 income statement, in good form, for the Vision Company using absorption costing . b) (i) Will 2020 income under variable costing be higher or lower than income under absorption costing? Explain your answer. (ii) What is the dollar difference in income? Show your calculations. (Note, you should be able to answer this question without preparing a variable costing income statement). c) The Vision Company’s management is considering implementing a bonus for the supervisors based on gross margin under absorption costing. (i) What is the main negative incentive this bonus plan will create for the supervisors? (ii) Describe three (3) modifications that the Vision Company management could make to improve this absorption costing-based plan?
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  • Spring '14
  • DavidR.Upton
  • Manufacturing Company

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