QUESTION 5Partially correctPoints out of 2000 Flag question

QUESTION 5Partially correctPoints out of 20.00 Flag question

Question text

Absorption and Variable Costing Comparisons: Sales Exceed Production

Wright Development purchases, develops, and sells commercial building sites. As the sites are sold, they are cleared at an average cost of $2,000 per site. Storm drains and driveways are also installed at an average cost of $5,500 per site. Selling costs are 10 percent of sales price. Administrative costs are $415,000 per year. During 2016, the company bought 1,000 acres of land for $5,000,000 and divided it into 200 sites of equal size. The average selling price per site was $80,000 during 2016 when 50 sites were sold. During 2017, the company purchased and developed another 1,000 acres, divided into 200 sites. The purchase price was again $5,000,000. Sales totaled 300 sites in 2017 at an average price of $80,000.

Required a. Prepare 2016 and 2017 functional income statements using absorption costing.

Use a negative sign only to indicate a net loss for income. Otherwise, do not use negative signs with your answers.

Wright Development

Functional Income Statements

For the Years 2016 and 2017

2016

2017

Sales

$

Answer

4,000,000

$

Answer

24,000,000

Cost of sales

Answer

1,625,000

Answer

9,750,000

Gross profit

Answer

2,375,000

Answer

14,250,000

Selling and administrative expenses:

Answer

815,000

Answer

815,000

Net income (loss)

$

Answer

1,560,000

$

Answer

13,435,000

b. Prepare 2016 and 2017 contribution income statements using variable costing.

Use a negative sign only to indicate a net loss for income. Otherwise, do not use negative signs with your answers.

Wright Development

Contribution Income Statements

For the Years 2016 and 2017

2016

2017

Sales

$

Answer

4,000,000

$

Answer

24,000,000

Variable costs

Answer

775,000

Answer

4,950,000

Contribution margin

Answer

3,225,000

Answer

19,050,000

Fixed expenses

Answer

5,415,000

Answer

5,415,000

Net income (loss)

$

Answer

(2,190,000)

$

Answer

13,635,000

Wright Development
Functional Income Statements
For the Years 2016 and 2017
	2016	2017
Sales	$ Answer 4,000,000	$ Answer 24,000,000
Cost of sales	Answer 1,625,000	Answer 9,750,000
Gross profit	Answer 2,375,000	Answer 14,250,000
Selling and administrative expenses:	Answer 815,000	Answer 815,000
Net income (loss)	$ Answer 1,560,000	$ Answer 13,435,000

QUESTION5 Partially correct Points out of 20.00 Flag question Absorption and Variable Costing Comparisons: Sales Exceed Production Wright Development purchases, develops, and sells commercial building sites. As the sites are sold, they are cleared at an average cost of $2,000 per site. Storm drains and driveways are also installed at an average cost of $5,500 per site. Selling costs are 10 percent of sales price. Administrative costs are $415,000 per year. During 2016, the company bought 1,000 acres of land for $5,000,000 and divided it Into 200 sites of equal size. The average selling price per site was $80,000 during 2016 when 50 sites were sold. During 2017, the company purchased and developed another 1,000 acres, divided into 200 sites. The purchase price was again $5,000,000. Sales totaled 300 sites in 2017 at an average price of $80,000 Required a. Prepare 2016 and 2017 functional income statements using absorption costing. Use a negative sign only to indicate a net loss for income. Otherwise, do not use negative signs with your answers. Wright Development Functional Income Statements For the Years 2016 and 2017 2016 2017 Sales 4,000,0 $24,000, Cost of sales 1,625,0 9,750,0 Gross profit 2,375,0 14,250, Selling and administrative expenses: 815,000 815,000 Net income (loss) $1,560,0 13,435, b. Prepare 2016 and 2017 contribution income statements using variable costing Use a negative sign only to indicate a net loss for Income. Otherwise, do not use negatlve signs with your answers. Wright Development Contribution Income Statements For the Years 2016 and 2017 2016 2017 Sales $4,000,0 24,000, Variable costs 775,004,950,0 19,050, Contribution margin 3,225,0 19 Fixed expenses Net income (oss (2,190, 13,635, 415,05,415,0

Solution

Absorption Income Statement 2016 2017 Sales 4000000 24000000 Less: Cost of Sales (COS) VC 7500*50 & 7500*300 375000 2250000 FOC 5000000*50/200 , 3750000+3750000 1250000 7500000 Total COS 1625000 9750000 Gross Profit 2375000 14250000 Selling and Adminis expenses: Selling Variable 400000 2400000 Administrative fixed 415000 415000 Total selling and adminis exp 815000 2815000 Net Income 1560000 11435000 Contribution Income Statement 2016 2017 Sales 4000000 24000000 Less: Variable costs: Operation 375000 2250000 Selling 400000 2400000 Total Variable costs 775000 4650000 Contribution   3225000 19350000 Less: Fixed costs: Operation 5000000 5000000 Adminis 415000 415000 Total Fixed Costs 5415000 5415000 Net Income -2190000 13935000