P12.2 (LO 1, 2, 3), AP The accounting team at Soar is considering its options for reporting performance at theend of this year. Soar specializes in mylar balloons, which it sells for $0.75 each. Soar has used only absorp-tion costing within its standard costing system, but management team members feel uneasy about Soar's mostrecent year's modest income (despite higher-volume sales than the previous year). They wonder if there isa different way to put the financial statements together that would provide a more consistent-and perhapsconservative-presentation of performance.Some people on the accounting team have experience with variable costing, so they suggest puttingtogether a side-by-side comparison of both costing systems for the past 2 years in order to compare the results.Following are the budgeted costs and budgeted production that were in place for both years, along with actualvolume information for each year.Prepare income statements andinventory section of balance sheetfor two years under variable andabsorption costing.Budgeted Information for Both YearsDirect materials$0.10 per unitDirect labor$0.10 per unitVariable-MOH$0.05 per unitVariable selling expense$0.05 per unitFixed-MOH$18,000Fixed selling and administrative expenses$28,500Budgeted production volume120,000 unitsProblemsActual ActivityYear 1Year 2Units produced124,000115,000Beginning FG Inventory (units)2,5009,500Units sold117,000121,000There were no price or efficiency variances for either year. Company policy is to write off any fixed-MOH vol-ume variance directly to COGS in the year incurred.Requireda. Report the unit cost that would be capitalized as inventory under (1) variable costing and (2) absorptioncosting. Show the FG Inventory section of the balance sheet at the end of each year for both methods.b. Present Soar's income statement for both years under (1) variable costing and (2) absorption costing.c. Calculate the difference in income between the two methods for each year, and explain any difference.d. Which income statement format would you recommend that Soar use for internal performance evaluationpurposes? Why?

The absorption costing includes all manufacturing cost whether fixed or variable as inventory cost.…

P12.2 (LO 1, 2, 3), AP The accounting team at Soar is considering its options for reporting performance at the end of this year. Soar specializes in mylar balloons, which it sells for $0.75 each. Soar has used only absorp- ion costing within its standard costing system, but management team members feel uneasy about Soar's most ecent year's modest income (despite higher-volume sales than the previous year). They wonder if there is different way to put the financial statements together that would provide a more consistent--and perhaps onservative-presentation of performance. Some people on the accounting team have experience with variable costing, so they suggest putting ogether a side-by-side comparison of both costing systems for the past 2 years in order to compare the results. Following are the budgeted costs and budgeted production that were in place for both years, along with actual rolume information for each year. Budgeted Information for Both Years Direct materials $0.10 per unit $0.10 per unit $0.05 per unit $0.05 per unit Direct labor Variable-MOH Variable selling expense Fixed-MOH $18,000 Fived selling and adminictrative exnencer $28 500

P12.2 (LO 1, 2, 3), AP The accounting team at Soar is considering its options for reporting performance at the end of this year. Soar specializes in mylar balloons, which it sells for $0.75 each. Soar has used only absorp- ion costing within its standard costing system, but management team members feel uneasy about Soar's most ecent year's modest income (despite higher-volume sales than the previous year). They wonder if there is different way to put the financial statements together that would provide a more consistent--and perhaps onservative-presentation of performance. Some people on the accounting team have experience with variable costing, so they suggest putting ogether a side-by-side comparison of both costing systems for the past 2 years in order to compare the results. Following are the budgeted costs and budgeted production that were in place for both years, along with actual rolume information for each year. Budgeted Information for Both Years Direct materials $0.10 per unit $0.10 per unit $0.05 per unit $0.05 per unit Direct labor Variable-MOH Variable selling expense Fixed-MOH $18,000 Fived selling and adminictrative exnencer $28 500

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter10: Cost Analysis For Management Decision Making

Section: Chapter Questions

Problem 16E

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Similar questions

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