a What is the net operating income loss in Year 1 under abso

(a) What is the net operating income (loss) in Year 1 under absorption costing?

(b) What is the net operating income (loss) in Year 2 under absorption costing?

(c) What is the net operating income (loss) in Year 1 under variable costing?

(d) What is the net operating income (loss) in Year 2 under variable costing?

1Chapter 5: Applying Excel 3 Data 4 Selling price per unit 5 Manufacturing costs 6 Variable per unit produced: 7 Direct materials 8 Direct labor 9 Variable manufacturing overhead 10 Fixed manufacturing overhead per year 11 Selling and administrative expenses 12 Variable per unit sold 13 Fixed per year $320 $103 $80 $22 $171,600 S9 $92,000 Year 2 15 16 Units in beginning inventory 17 Units produced during the year 18 Units sold during the year 19 Year 1 3,300 2,900 2,600 2,900

Solution

Ans c Option 3 sales exceeded the production so some fixed manufacturing overhead of the period was released from inventories under absorption costing ans 3 wprking Absorption costing Income statement Sales (2900*320) 928000 Less: cost of good sold Beginning Inventory( (103+80+22+(171600/3300))*400 102800 Add: Goods manufactured 1237600 ((103+80+22+(171600/5200))*5200 units Less: ending inventory ((103+80+22+(171600/5200))*2700 units 642600 Cost of good sold 697800 Gross profit 230200 Less: Selling and administrative expenses 118100 (2900*9)+92000 Net operating income 112100 working ending inventory is 400+5200-2900 2700 Ans 3a Yes it will result in bonus as NOI is $112100 ans 3b Net operating income 112100 ans c No, as sales will continue to be 2900 hence doubling of production is not recommended as this will have unnecessary increase in inventory. If any doubt please comment