Problem 2 Input values Solve the given problem based on the

	Problem 2																				Input values
	Solve the given problem based on the following information.
																						Company name			Conglomco
	Scenario Table 1
	Conglomco Income Statement Under Absorption Costing										Conglomco Income Statement Under Absorption Costing
							2011 ($)	2012 ($)																		2011 ($)		2012 ($)
	Sales ($45 per unit)					900,000			1,800,000											Sales ($45 per unit)							900,000		1,800,000
	Cost of goods sold ($31 per unit)			620,000			1,240,000											Cost of goods sold ($31 per unit)					620,000		1,240,000
	Gross margin						280,000			560,000											Gross margin							280,000		560,000
	Selling and administrative expenses			290,000			340,000											Selling and administrative expenses				290,000		340,000
	Net income/loss						(10,000)			220,000											Net income/loss							(10,000)		220,000
	Scenario Table 2																				Selling price					$45		per unit
	Units Produced and Sold													COGS						$31		per unit
				2011	2012													Variable selling and administrative cost		$2.50		per unit
	Units produced			30,000			30,000
	Units sold			20,000			40,000
																						Units Produced and Sold
	·	During 2011 and 2012, the variable cost per unit stayed the same.												2011	2012
	·	During 2011 and 2012, the total fixed costs stayed the same.											Units produced		30,000	30,000		TRUE
																						Units sold			20,000	40,000
	Scenario Table 3
	Per Unit Product Cost
	Direct materials						$5
	Direct labor						$9
	Variable overhead						$7														Fixed overhead					$300,000
	Fixed overhead ($300,000 / 30,000 units)		$10
	Total product cost per unit					$31
																						Per Unit Product Cost
	Scenario Table 4																				Direct materials							$5
	Sales and Administrative Expense							Direct labor							$9
										2011 ($)	2012 ($)							Variable overhead							$7
	Variable selling and administrative ($2.50 per unit)			50,000			100,000								Fixed overhead ($300,000 / 30,000 units)				$10
	Fixed selling and administrative						240,000			240,000								Total product cost per unit					$31
	Total selling and administrative						290,000			340,000
	Reconcile the variable costing income to the absorption costing income for these two years.
																						Sales and Administrative Expense
																														2011 ($)		2012 ($)
	Reconciliation of Variable Costing Income to Absorption Costing Income							Variable selling and administrative ($2.50 per unit)		50,000		100,000
										2011 ($)	2012 ($)							Fixed selling and administrative					240,000		240,000
	Variable costing income							?				?								Total selling and administrative					290,000		340,000
	Fixed overhead in ending inventory					?			?
	Fixed overhead in beginning inventory					?			?
	Absorption costing income							?			?

Solution

Preparation of Variable costing Income statement for 2011 and 2012 2011 2012 Sales $900,000 $1,800,000 Less : Variable Production costs ($21 per unit) $420,000 $840,000 Less : Variable selling and admin costs $50,000 $100,000 Contribution Margin $430,000 $860,000 Less : Fixed Manufacturing overheads $300,000 $300,000 Less : Fixed selling & admin costs $240,000 $240,000 Net Income -$110,000 $320,000 Reconciliation of Variable Costing Income to Absorption Costing Income Variable costing Income -$110,000 $320,000 Add : Fixed Overhead in ending Inventory $100,000 $0 Less : Fixed Overhead in beginning Inventory $0 $100,000 Absorption costing income -$10,000 $220,000