Question 1.ncome from operations is one of the most important items reported by a company. Depending on the decision-making needs of management, income from operations can be determined using absorption costing or variable costing.Choose whether the following characteristics are most often associated with absorption costing or variable costing. Absorption CostingVariable CostingRequired under generally accepted accounting principles (GAAP) Often used for internal use in decision making Cost of goods manufactured includes only variable manufacturing costs Used in reports prepared for external users Fixed factory overhead costs are not part of cost of goods manufactured Both fixed and variable factory costs are included in cost of goods sold and inventory Question 2.Review the income statements on the Absorption Statement and Variable Statement panels, then complete the following table. The company’s sales price per unit is $75.00, and the number of units in ending inventory is 5,000.ItemAmountNumber of units sold Variable sales and administrative cost per unit Number of units manufactured Variable cost of goods manufactured per unit Fixed manufacturing cost per unit Question 3.The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement panel and the Variable Statement panel, he notices that the income from operations is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost income from operations and satisfy the company’s owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter "0".1. Use the income statements on the Absorption Statement and Variable Statement panels to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels.Income From OperationsOriginalOriginalAdditionalAdditionalProductionProduction10,00010,000Level-AbsorptionLevel-VariableUnits-AbsorptionUnits-Variable 2. What is the change in income from operations from producing 10,000 additional units under absorption costing? 3. What is the change in income from operations from producing 10,000 additional units under variable costing? 4. What would be your recommendation to the production manager?Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold. Do not produce the extra 10,000 units. The increase in income from operations under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs. Do not produce the extra 10,000 units. Income from operations does not change under absorption costing when the additional units are produced. Produce the extra 10,000 units. Income from operations will be increased, and the production manager will receive praise for creating higher profits. Question 4.Contribution margin analysis focuses on explaining the differences between planned and actual contribution margins, considering the quantity factor and the unit price factor.After reviewing the data on the Contribution Margin Data panel, complete the following contribution margin analysis. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Saxon, Inc.Contribution Margin AnalysisFor the Year Ended December 311Planned contribution margin 2Effect of changes in sales: 3Sales quantity factor 4Unit price factor 5Total effect of changes in sales 6Effect of changes in variable cost of goods sold: 7Variable cost quantity factor 8Unit cost factor 9Total effect of changes in variable cost of goods sold 10Effect of changes in selling and administrative expenses: 11Variable cost quantity factor 12Unit cost factor 13Total effect of changes in selling and administrative expenses 14Actual contribution margin

Name: Question 1.ncome from operations is one of the most important items re
Uploaded: 2024-03-20T06:32:49.000Z
Channel: Bartleby
Description: Question 1.ncome from operations is one of the most important items reported by a company. Depending on the decision-making needs of management, income from operations can be determined using absorption costing or variable costing.Choose whether the

Question

Question 1.ncome from operations is one of the most important items reported by a company. Depending on the decision-making needs of management, income from operations can be determined using absorption costing or variable costing.Choose whether the following characteristics are most often associated with absorption costing or variable costing. Absorption CostingVariable CostingRequired under generally accepted accounting principles (GAAP)   Often used for internal use in decision making   Cost of goods manufactured includes only variable manufacturing costs   Used in reports prepared for external users   Fixed factory overhead costs are not part of cost of goods manufactured   Both fixed and variable factory costs are included in cost of goods sold and inventory    Question 2.Review the income statements on the Absorption Statement and Variable Statement panels, then complete the following table. The company’s sales price per unit is $75.00, and the number of units in ending inventory is 5,000.ItemAmountNumber of units sold Variable sales and administrative cost per unit Number of units manufactured Variable cost of goods manufactured per unit Fixed manufacturing cost per unit Question 3.The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement panel and the Variable Statement panel, he notices that the income from operations is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company’s capacity for manufacturing, in the coming year. He reasons that this will boost income from operations and satisfy the company’s owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answer is zero, enter &#34;0&#34;.1. Use the income statements on the Absorption Statement and Variable Statement panels to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels.Income From OperationsOriginalOriginalAdditionalAdditionalProductionProduction10,00010,000Level-AbsorptionLevel-VariableUnits-AbsorptionUnits-Variable     2. What is the change in income from operations from producing 10,000 additional units under absorption costing?  3. What is the change in income from operations from producing 10,000 additional units under variable costing?  4. What would be your recommendation to the production manager?Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold. Do not produce the extra 10,000 units. The increase in income from operations under absorption costing is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, financing, and obsolescence costs. Do not produce the extra 10,000 units. Income from operations does not change under absorption costing when the additional units are produced. Produce the extra 10,000 units. Income from operations will be increased, and the production manager will receive praise for creating higher profits. Question 4.Contribution margin analysis focuses on explaining the differences between planned and actual contribution margins, considering the quantity factor and the unit price factor.After reviewing the data on the Contribution Margin Data panel, complete the following contribution margin analysis. For those boxes in which you must enter subtracted or negative numbers use a minus sign. Saxon, Inc.Contribution Margin AnalysisFor the Year Ended December 311Planned contribution margin  2Effect of changes in sales:  3Sales quantity factor  4Unit price factor  5Total effect of changes in sales  6Effect of changes in variable cost of goods sold:  7Variable cost quantity factor  8Unit cost factor  9Total effect of changes in variable cost of goods sold  10Effect of changes in selling and administrative expenses:  11Variable cost quantity factor  12Unit cost factor  13Total effect of changes in selling and administrative expenses  14Actual contribution margin

Accepted Answer

Absorption costing: Absorption costing is used to compute cost of a product. Under this method cost…

	Absorption Costing	Variable Costing
Required under generally accepted accounting principles (GAAP)
Often used for internal use in decision making
Cost of goods manufactured includes only variable manufacturing costs
Used in reports prepared for external users
Fixed factory overhead costs are not part of cost of goods manufactured
Both fixed and variable factory costs are included in cost of goods sold and inventory

Item	Amount
Number of units sold
Variable sales and administrative cost per unit
Number of units manufactured
Variable cost of goods manufactured per unit
Fixed manufacturing cost per unit

Income From Operations
Original	Original	Additional	Additional
Production	Production	10,000	10,000
Level-Absorption	Level-Variable	Units-Absorption	Units-Variable

1	Planned contribution margin
2	Effect of changes in sales:
3	Sales quantity factor
4	Unit price factor
5	Total effect of changes in sales
6	Effect of changes in variable cost of goods sold:
7	Variable cost quantity factor
8	Unit cost factor
9	Total effect of changes in variable cost of goods sold
10	Effect of changes in selling and administrative expenses:
11	Variable cost quantity factor
12	Unit cost factor
13	Total effect of changes in selling and administrative expenses
14	Actual contribution margin