Answered: Yale Company manufactures hair brushes…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter7: Inventories: Cost Measurement And Flow Assumptions

Section: Chapter Questions

Problem 17GI

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Question

Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations:

	Prior Year	Current Year
Sales (000s)	2,900	units	5,500	units
Production (000s)	4,200	units	4,200	units
Production cost
Factory—variable (per unit)	$ 0.60		$ 0.60
—fixed (000s)	$ 2,100		$ 2,100
Marketing—variable (per unit)	$ 0.40		$ 0.40
Administrative—fixed (000s)	$ 500		$ 500

Required:

1. Prepare an income statement for each year based on full costing.

2. Prepare an income statement for each year based on variable costing.

3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.

Sales
Less: Cost of goods sold
Available for sale
Cost of goods sold
Contribution margin
Less: Selling and administrative costs

Sales
Less: Cost of goods sold
Beginning inventory
Cost of goods produced
Available for sale
Less: Ending inventory
Cost of goods sold
Gross margin
Less: Selling and administrative costs
Variable
Fixed
Operating income
Full Costing
Income Statement
Prior Year
$
8,700
Current Year
$
16,500

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