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Absorption costing:
It is a costing in which the company includes all the cost including the fixed costing in order to determine the cost of a product.
It is the costing method that a company is required to use for calculating and filing its taxes.
Variable costing:
It is the costing which includes all type of variable cost. It is an accounting method used to allocate production to its cost and it is done during the period.
Requirement 1:
To prepare:
The Income statement using the absorption costing.
Absorption costing:
It is a costing in which the company includes all the cost including the fixed costing in order to determine the cost of a product.
It is the costing method that a company is required to use for calculating and filing its taxes.
Variable costing:
It is the costing which includes all type of variable cost. It is an accounting method used to allocate production to its cost and it is done during the period.
Requirement 2:
To indicate:
The difference between the Income under the variable costing and absorption costing.
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Chapter 6 Solutions
MANAGERIAL ACCOUNTING FUND. W/CONNECT
- When prices are falling (deflation), which costing method would produce the highest gross margin for the following? Choose first-in, first-out (FIFO); last-in, first-out (LIFO); or weighted average, assuming that B62 Company had the following transactions for the month. Calculate the gross margin for each of the following cost allocation methods, assuming B62 sold just one unit of these goods for $400. Provide your calculations. A. first-in, first-out (FIFO) B. last-in, first-out (LIFO) C. weighted average (AVG)arrow_forwardOrange Company produces single product. Last year, the company’s net operating income computed by the absorption costing methos was P 25,600, and its operating income computed by the variable costing method was P 36,400. The company’s unit product cost was P18 under variable costing and P20 under absorption costing. If the ending inventory is consisted of 2,600 units, the beginning inventory in units must have been:arrow_forwardAt EOM Inc., the beginning inventory is 20,000 units. All of the units manufactured during the period and 16,000 units of the beginning inventory were sold. The beginning inventory fixed costs are $50 per unit, and variable costs are $300 per unit. a. Determine whether variable costing operating income is less than or greater than absorption costing operating income. b. Determine the difference in variable costing and absorption operating income.fill in the blank 1 of 1$arrow_forward
- The following data relate to Lobo Corporation for the year just ended: Sales revenue $750,000 Cost of goods sold: Variable portion 370,000 Fixed portion 110,000 Variable selling and administrative cost 50,000 Fixed selling and administrative cost 75,000 Which of the following statements is correct? A. Lobo’s variable-costing income statement would reveal a gross margin of $270,000. B. Lobo’s variable costing income statement would reveal a contribution margin of $330,000. C. Lobo’s absorption-costing income statement would reveal a contribution margin of $330,000. D. Lobo’s absorption costing income statement would reveal a gross margin of $330,000. E. Lobo’s absorption-costing income statement would reveal a gross margin of $145,000.arrow_forwardSierra Company incurs the following costs to produce and sell a single product. (picture1) During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goodsinventory account at the end of the year shows a balance of $72,000 for the 3,000 unsold units.Required:1. Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory account? Show computations to support your answer.2. Assume that the company wishes to prepare financial statements for the year to issue to its stockholders.a. Is the $72,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? Explain.b. At what dollar amount should the 3,000 units be carried in the inventory for externalreporting purposes?arrow_forwardThe inventory ledger account of Yim Inc. shows that the level of inventory of the manufactured product has increased by 10,000 units over the period. Yim provided the following unit cost information for its manufacturing and non-manufacturing costs: Cost Information Costs Variable Fixed Manufacturing costs per unit 12.50 5.60 Selling and administrative costs per unit 5.00 2.00 Which of the following statements is true? Group of answer choices Net income will be the same under both variable and absorption costing. Net income under absorption costing will be $76,000 more than under variable costing. The difference in net income cannot be determined. Net income under variable costing will be $56,000 less than net income under absorption costing.arrow_forward
- On December 31, the end of the first year of operations, Frankenreiter Inc., manufactured 3,900 units and sold 3,400 units. The following income statement was prepared, based on the variable costing concept: Frankenreiter Inc.Variable Costing Income StatementFor the Year Ended December 31, 20Y1 Sales $1,394,000 Variable cost of goods sold: Variable cost of goods manufactured $768,300 Inventory, December 31 (98,500) Total variable cost of goods sold 669,800 Manufacturing margin $724,200 Total variable selling and administrative expenses 166,600 Contribution margin $557,600 Fixed costs: Fixed manufacturing costs $351,000 Fixed selling and administrative expenses 112,200 Total fixed costs 463,200 Income from operations $94,400 Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing concept. Variable costing $ Absorption costing $arrow_forwardOn March 31, the end of the first year of operations, Barnard Inc., manufactured 5,500 units and sold 4,700 units. The following income statement was prepared, based on the variable costing concept: Barnard Inc.Variable Costing Income StatementFor the Year Ended March 31, 20Y1 Sales $940,000 Variable cost of goods sold: Variable cost of goods manufactured $528,000 Inventory, March 31 (76,800) Total variable cost of goods sold (451,200) Manufacturing margin $488,800 Total variable selling and administrative expenses (112,800) Contribution margin $376,000 Fixed costs: Fixed manufacturing costs $242,000 Fixed selling and administrative expenses 75,200 Total fixed costs (317,200) Operating income $58,800 Determine the unit cost of goods manufactured, based on (a) the variable costing concept and (b) the absorption costing concept. Variable costing $fill in the blank 1 Absorption costing…arrow_forwardKALIBO CORP. prepared the following absorption-costing income statement for the year ended May 31, 2019 Sales (16,000 units) Cost of goods sold Gross margin Selling and administrative expenses Operating income Additional information follows: Selling and administrative expenses include P1.50 of variable cost per unit sold. There was no beginning inventory, and 17,500 units were produced. Variable manufacturing costs were P11 per unit. Actual fixed costs were equal to budgeted fixed costs. REQUIREMENT: Prepare a variable-costing income statement for the same period. P 320,000 216.000 P104,000 46.000 P 58,000 Absorption Costing Income Statement (Conversion from Variable Net Income) 4. LEGAZPI COMPANY manufactures and sells premium tomato juice by the gallon. LEGAZPI just finished its first year of operations. The following data relates to this first year:arrow_forward
- Circetrax, Inc. has provided the following financial information for the year: Finished Goods Inventory: Beginning balance, in units 600 Units produced 2,800 Units sold 2,900 Ending balance, in units 500 Production costs: Variable manufacturing costs per unit $60 Total fixed manufacturing costs $42,000 What is the unit product cost for the year using absorption costing? A. $84 B. $75 C. $130 D. $74arrow_forwardThe beginning inventory is 16,100 units. All of the units that were manufactured during the period and 16,100 units of the beginning inventory were sold. The beginning inventory fixed manufacturing costs are $41 per unit, and variable manufacturing costs are $96 per unit. a. Determine whether variable costing operating income is less than or greater than absorption costing operating income. b. Determine the difference in variable costing and absorption costing operating income.arrow_forwardJax Incorporated reports the following data for its only product. The company had no beginning finished goods inventory and it uses absorption costing. Sales price$ 58.00per unitDirect materials$ 11.00per unitDirect labor$ 8.50per unitVariable overhead$ 13.00per unitFixed overhead$ 1,440,000per year 1. Compute gross profit assuming (a) 80,000 units are produced and 80,000 units are sold and (b) 120,000 units are produced and 80,000 units are sold. 2. By how much would the company’s gross profit increase or decrease from producing 40,000 more units than it sells?arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeFinancial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
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