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W Produce Anything, Inc., a small manufacturing company, commenced operations at the beginning of the year. The following income statement for the first quarter was prepared by MBA graduate #1. We Produce Anything, Inc. Income Statement For The Quarter Ended March 31 Sales (46,000 units) $2,300,000 Variable expenses Variable cost of goods sold 910,800 Variable selling & administrative 368,000 1,278,800 Contribution Margin 1,021,200 Fixed expenses Fixed manufacturing overhead 600,000 Fixed selling & administrative 431,200 1,031,200 Net Operating Loss $(10,000) Management is discouraged about the loss. MBA graduate #2 insists that the company should be using absorption costing instead of variable costing. She (or he) states that, if absorption costing had been used, the company would have reported a profit for the quarter. For the first quarter, the company is producing only one product. Production and cost data relating to that product for the first quarter is: Units produced 50,000 Units sold 46,000 Variable costs per unit Direct materials $4.20 Direct labor 14.40 Variable manufacturing overhead 1.20 Variable selling & administrative 8.00 Required: 1a] Compute the unit cost under absorption costing. b] Redo the company’s income statement for the quarter using absorption costing. c] Reconcile the variable and absorption costing net operating income (loss) figures. 2] Was the MBA graduate #2 correct in stating that the company really earned a profit for the quarter? Please explain your answer. 3] During the second quarter of operations, the company again produced 50,000 units but sold 54,000 units. (Assume no change in fixed costs.) a) Prepare a contribution format income statement for the second quarter using variable costing.
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b) Prepare an income statement for the second quarter using absorption costing. c) Reconcile the variable and absorption costing net operating incomes. The S Corporation makes two types of skis—Better and Great. The data for the two product lines is: Better Great Selling price per unit 210 150 Direct materials per unit ($) 110 80 Direct labor per unit ($) 30 15 Direct labor-hours per unit 2 1 Estimated annual production 12,500 55,000 The company has a traditional costing system in which manufacturing overhead is applied to units based on direct labor-hours. Estimated total manufacturing overhead $2,000,000 Estimated total direct labor-hours 80,000DLHs Required: 1] Using Exhibit 6-12 as a guide, compute the product margins for the Better and Great products under the company’s traditional costing systems. Assume all units are sold. 2] The company is considering replacing its traditional costing system with an activity- based costing system that would assign its manufacturing overhead to the following four activity cost pools (the other category contains organization-sustaining and idle capacity costs); Activities and activity measures Est. Overhead costs Expected activity Better Great Total Supporting direct labor(DLH) 784,000 25,000 55,000 80,000 Batch setups (set ups) 500,000 400 100 500 Product sustaining (# of products) 600,000 1 1 2 Other 116,000 N/A N/A N/A Total manufacturing overhead 2,000,000 Using Exhibit 6-10 as a guide, compute the product margins for the Better and Great products under the activity-based costing system.
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Units Produced 50,000 Units Produced 50,000 Units Sold 46,000 Units Sold 54,000 Unit product cost under variable costing only includes variable manufacturing
costs in the cost of a product....

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