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Rogers sells shoes at $25 per pair. The following data are related to its 2022 operation: Items Year 2022 Sales 95,000 unit Beginning inventory 20,000 unit Production 85,500 unit Ending inventory 10,500 unit Variable manufacturing cost per unit $20 Fixed manufacturing overhead costs $2,000,000 per year Denominator machine hours 1800 Standard production rate 50 units per machine hour Variable operating expenses $5 per unit Fixed selling and administration expenses $100,000 per year Assumption: The standard cost per unit is same for units in beginning and unit produced during the year and no price, spending or efficiency variance. 10 Required: a. Prepare income statements for year 2022 using absorption costing. b. Prepare income statements for year 2022 using variable costing. c. Explain why the income was different each year using the two methods. d. Explain why absorption costing has potential for leading to undesirable incentives for managers

Rogers sells shoes at $25 per pair. The following data are related to its 2022 operation: Items Year 2022 Sales 95,000 unit Beginning inventory 20,000 unit Production 85,500 unit Ending inventory 10,500 unit Variable manufacturing cost per unit $20 Fixed manufacturing overhead costs $2,000,000 per year Denominator machine hours 1800 Standard production rate 50 units per machine hour Variable operating expenses $5 per unit Fixed selling and administration expenses $100,000 per year Assumption: The standard cost per unit is same for units in beginning and unit produced during the year and no price, spending or efficiency variance. 10 Required: a. Prepare income statements for year 2022 using absorption costing. b. Prepare income statements for year 2022 using variable costing. c. Explain why the income was different each year using the two methods. d. Explain why absorption costing has potential for leading to undesirable incentives for managers

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter18: Pricing And Profitability Analysis
Section: Chapter Questions
Problem 3CE: Pattison Products, Inc., began operations in October and manufactured 40,000 units during the month...
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Rogers sells shoes at $25 per pair. The following data are related to its 2022 operation: Items Year 2022 Sales 95,000 unit Beginning inventory 20,000 unit Production 85,500 unit Ending inventory 10,500 unit Variable manufacturing cost per unit $20 Fixed manufacturing overhead costs $2,000,000 per year Denominator machine hours 1800 Standard production rate 50 units per machine hour Variable operating expenses $5 per unit Fixed selling and administration expenses $100,000 per year Assumption: The standard cost per unit is same for units in beginning and unit produced during the year and no price, spending or efficiency variance. 10 Required: a. Prepare income statements for year 2022 using absorption costing. b. Prepare income statements for year 2022 using variable costing. c. Explain why the income was different each year using the two methods. d. Explain why absorption costing has potential for leading to undesirable incentives for managers
Transcribed Image Text:Rogers sells shoes at $25 per pair. The following data are related to its 2022 operation: Items Year 2022 Sales 95,000 unit Beginning inventory 20,000 unit Production 85,500 unit Ending inventory 10,500 unit Variable manufacturing cost per unit $20 Fixed manufacturing overhead costs $2,000,000 per year Denominator machine hours 1800 Standard production rate 50 units per machine hour Variable operating expenses $5 per unit Fixed selling and administration expenses $100,000 per year Assumption: The standard cost per unit is same for units in beginning and unit produced during the year and no price, spending or efficiency variance. 10 Required: a. Prepare income statements for year 2022 using absorption costing. b. Prepare income statements for year 2022 using variable costing. c. Explain why the income was different each year using the two methods. d. Explain why absorption costing has potential for leading to undesirable incentives for managers
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