Question #1 

Consider the following information:

 

Q1

Q2

Q3

 

Beginning inventory   (units)

0

2,000

1,000

 

Budgeted units to be   produced

300,000

300,000

300,000

 

Actual units produced

296,000

301,000

302,000

 

Units sold

294,000

302,000

302,000

 

Variable manufacturing   costs per unit produced

$40

$40

$40

 

Variable selling costs   per unit sold

$10

$10

$10

 

Fixed manufacturing   costs

$3,000,000

$3,000,000

$3,000,000

 

Fixed selling costs

$1,000,000

$1,000,000

$1,000,000

 

Selling price per unit

$70

$70

$70

There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs.

a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing.

b) Explain the differences in operating income between the two costing systems for each quarter. Be specific!

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