Adams Company, a manufacturer of in-home decorative fountains, began operations on September 1 of the current year. Its cost and sales information for this year follows.

  Production costs

     Direct materials

$

40

  per unit

     Direct labor

$

60

  per unit

     Overhead costs for the year

         Variable overhead

$

3,000,000

         Fixed overhead

$

7,000,000

  Nonproduction costs for the year

     Variable selling and administrative

$

770,000

     Fixed selling and administrative

$

4,250,000

  Production and sales for the year

     Units produced

100,000

 units

     Units sold

70,000

 units

     Sales price per unit

$

350

 per unit

1.

Prepare an income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

2.

Prepare an income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

3.

Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

Woodson Company, a producer of solid oak tables, reports the following data from its current year operations, which is its second year of business.

  Sales price per unit

$

320

 per unit

  Units produced this year

115,000

 units

  Units sold this year

118,000

 units

  Units in beginning-year inventory

3,000

 units

  Beginning inventory costs

       Variable (3,000 units × $135)

$

405,000

       Fixed (3,000 units × $80)

240,000

       Total

$

645,000

  Production costs this year

       Direct materials

$

40

 per unit

       Direct labor

$

62

 per unit

       Overhead costs this year

           Variable overhead

$

3,220,000

           Fixed overhead

$

7,400,000

  Nonproduction costs this year

       Variable selling and administrative

$

1,416,000

       Fixed selling and administrative

4,600,000

1.

Prepare the current year income statement for the company using absorption costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

2.

Prepare the current year income statement for the company using variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Leave no cells blank – be certain to enter “0” wherever required. Omit the “$” sign in your response.)

Lyon Furnaces prepares the income statement under variable costing for its managerial reports, and it prepares the income statement under absorption costing for external reporting. For its first month of operations, 375 furnaces were produced and 225 were sold; this left 150 furnaces in ending inventory. The income statement information under variable costing follows.

  Sales (225 × $1,600)

$

360,000  

  Variable production cost (225 × $625)

140,625  

  Variable selling and administrative expenses (225 × $65)

14,625  

  Contribution margin

204,750  

  Fixed overhead cost

56,250  

  Fixed selling and administrative expense

75,000  

  Net income

$

73,500  

1.

Prepare this company’s income statement for its first month of operations under absorption costing.(Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

Polarix is a retailer of ATVs (all terrain vehicles) and accessories. An income statement for its Consumer ATV Department for the current year follows. ATVs sell, on average, for $3,800. Variable selling expenses are $270 each. The remaining selling expenses are fixed. Administrative expenses are 40% variable and 60% fixed. The company does not manufacture its own ATVs; it purchases them from a supplier for $1,830 each.

POLARIX
Income Statement—Consumer ATV Department
For Year Ended December 21, 2011

  Sales

$

646,000  

  Cost of goods sold

311,100  

  Gross margin

334,900  

  Operating expenses

      Selling expenses

$

135,000  

      Administrative expenses

59,500  

194,500  

  Net income

$

140,400  

1.

Prepare an income statement for this current year using the contribution margin format. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)

2.

For each ATV sold during this year, what is the contribution toward covering fixed expenses and that toward earning income? (Omit the “$” sign in your response.)

  Contribution margin per ATV

Rourke Inc. reports the following annual cost data for its single product.

  Normal production and sales level

60,000

 units

  Sales price

$

56.00

 per unit

  Direct materials

$

9.00

  Direct labor

$

6.50

 per unit

  Variable overhead

$

11.00

 per unit

  Fixed overhead

$

720,000

 in total

If Rourke increases its production to 80,000 units, while sales remain at the current 60,000 unit level, by how much would the company’s gross margin increase or decrease under absorption costing? Assume the company has idle capacity to double current production. (Omit the “$” sign in your response.)

Torres Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for its first year of operations follows.

  Sales (80,000 units × $50 per unit)

$

4,000,000  

  Cost of goods sold

     Beginning inventory

$

0  

     Cost of goods manufactured (100,000 units × $30 per unit)

3,000,000  

     Cost of good available for sale

3,000,000  

     Ending inventory (20,000 × $30)

600,000  

     Cost of goods sold

2,400,000  

  Gross margin

1,600,000  

  Selling and administrative expenses

530,000  

  Net income

$

1,070,000  

a.

Selling and administrative expenses consist of $350,000 in annual fixed expenses and $2.25 per unit in variable selling and administrative expenses.

b.

The company’s product cost of $30 per unit is computed as follows.

  Direct materials

$

5

 per unit

  Direct labor

$

14

 per unit

  Variable overhead

$

2

 per unit

  Fixed overhead ($900,000 / 100,000 units)

$

9

 per unit

1.

Prepare an income statement for the company under variable costing. (Input all amounts as positive values except net loss which should be indicated with a minus sign. Omit the “$” sign in your response.)