Peterson Corporation produces a single product. The company had no beginning inventory and they produced 70,000 units during 2021 and sold 60,000 units. The operating data for 2021 follow: Sales $1,380,000 Manufacturing costs: Direct Materials 294,000 Direct Labor 182,000 Variable manufacturing overhead 273,000 Fixed manusfacturing overhead 150,500 Selling & Administrative expenses: Fixed 140,000 Variable 258,000 Required: C). Calculate the amount of net income under absorption coating D). Explain in detail why the net income differs under the two accounting m
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Peterson Corporation produces a single product. The company had no beginning inventory and they produced 70,000 units during 2021 and sold 60,000 units. The operating data for 2021 follow:
Sales $1,380,000
Direct Materials 294,000
Direct Labor 182,000
Variable manufacturing
Fixed manusfacturing overhead 150,500
Selling & Administrative expenses:
Fixed 140,000
Variable 258,000
Required:
C). Calculate the amount of net income under absorption coating
D). Explain in detail why the net income differs under the two accounting methods.
Step by step
Solved in 2 steps
