Calculate absorption costing income and variable costing income. Construct and prepare an income statement for a calendar year. Introduction Note: Accounting requires specific steps
Calculate absorption costing income and variable costing income. Construct and prepare an income statement for a calendar year.
Introduction
Note: Accounting requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.
Businesses must track the costs of doing business and profits to plan for the future.
Instructions
Note: Accounting requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.
Use the Variable Costing Conversion Template [XLSX] to complete this assessment.
Competencies Measured
By successfully completing this assessment, you will demonstrate your proficiency in the course competencies through the following assessment scoring guide criteria:
- Competency 2: Apply sound budgeting principles.
- Calculate absorption costing income and variable costing income.
- Competency 4: Analyze financial statements.
- Construct an income statement for each year using variable costing.
- Prepare an income statement for a calendar year using variable costing.
- Competency 5: Communicate in a manner that is professional and consistent with expectations for professionals in the field of accounting.
- Communicate quantitative information accurately and effectively.
Problem 1
| BUS-FPX4061 – Managerial Accounting Principles | |||||||||||||||||||||||||||||||||
| Assessment 7: Variable Costing Conversion | Input values | ||||||||||||||||||||||||||||||||
| Problem 1 | Company name | Jordan | |||||||||||||||||||||||||||||||
| Solve the given problem based on the following information. | Year 1 | 2016 | |||||||||||||||||||||||||||||||
| Year 2 | 2017 | ||||||||||||||||||||||||||||||||
| Scenario Table 1 | |||||||||||||||||||||||||||||||||
| Jordan Income Statement Under Absorption Costing | Jordan Income Statement Under Absorption Costing | ||||||||||||||||||||||||||||||||
| 2016 ($) | 2017 ($) | 2016 ($) | 2017 ($) | ||||||||||||||||||||||||||||||
| Sales ($45 per unit) | 828,000 | 1,620,000 | Sales ($45 per unit) | 828,000 | 1,620,000 | ||||||||||||||||||||||||||||
| 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 | 208,000 | 380,000 | Gross margin | 208,000 | 380,000 | ||||||||||||||||||||||||||||
| Selling and administrative expenses | 261,000 | 306,000 | Selling and administrative expenses | 261,000 | 306,000 | ||||||||||||||||||||||||||||
| Net income/loss | (53,000) | 74,000 | Net income/loss | (53,000) | 74,000 | ||||||||||||||||||||||||||||
| Scenario Table 2 | Selling price | $45 | per unit | ||||||||||||||||||||||||||||||
| Units Produced and Sold | COGS | $31 | per unit | ||||||||||||||||||||||||||||||
| 2016 | 2017 | Variable selling and administrative cost | $2.25 | per unit | |||||||||||||||||||||||||||||
| Units produced | 30,000 | 30,000 | |||||||||||||||||||||||||||||||
| Units sold | 20,000 | 40,000 | |||||||||||||||||||||||||||||||
| Units Produced and Sold | |||||||||||||||||||||||||||||||||
| · | During 2016 and 2017, the variable cost per unit stayed the same. | 2016 | 2017 | ||||||||||||||||||||||||||||||
| · | During 2016 and 2017, 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 | $9 | |||||||||||||||||||||||||||||||
| 2016 ($) | 2017 ($) | Variable overhead | $7 | ||||||||||||||||||||||||||||||
| Variable selling and administrative ($2.25 per unit) | 45,000 | 90,000 | Fixed overhead ($300,000 / 30,000 units) | $10 | |||||||||||||||||||||||||||||
| Fixed selling and administrative | 216,000 | 216,000 | Total product cost per unit | $31 | |||||||||||||||||||||||||||||
| Total selling and administrative | 261,000 | 306,000 | |||||||||||||||||||||||||||||||
| Prepare an income statement for each year using variable costing. | Sales and Administrative Expense | ||||||||||||||||||||||||||||||||
| 2016 ($) | 2017 ($) | ||||||||||||||||||||||||||||||||
| Variable selling and administrative ($2.25 per unit) | 45,000 | 90,000 | |||||||||||||||||||||||||||||||
| Jordan Variable Costing Income Statements | Fixed selling and administrative | 216,000 | 216,000 | ||||||||||||||||||||||||||||||
| 2016 | 2017 | Total selling and administrative | 261,000 | 306,000 | |||||||||||||||||||||||||||||
| Sales ($45 per unit sold) | |||||||||||||||||||||||||||||||||
| Less variable expenses: | |||||||||||||||||||||||||||||||||
| Variable production costs ($21 per unit sold*) | |||||||||||||||||||||||||||||||||
| Variable selling and administrative costs ($2.25 per unit sold) | 45,000 | 90,000 | |||||||||||||||||||||||||||||||
| Total variable costs | |||||||||||||||||||||||||||||||||
| Contribution margin | |||||||||||||||||||||||||||||||||
| Less fixed expenses: | |||||||||||||||||||||||||||||||||
| Factory overhead | |||||||||||||||||||||||||||||||||
| Fixed selling and administrative costs | 216,000 | 216,000 | |||||||||||||||||||||||||||||||
| Total fixed expenses | |||||||||||||||||||||||||||||||||
| Net income | |||||||||||||||||||||||||||||||||
| *Note: The variable production cost is computed by adding the per-unit production costs for | |||||||||||||||||||||||||||||||||
| direct materials, direct labor, and variable overhead ($5 + $9 + $7 = $21). | |||||||||||||||||||||||||||||||||
Problem 2
| Problem 2 | Input values | |||||||||||||||||||||||||||||||
| Solve the given problem based on the following information. | ||||||||||||||||||||||||||||||||
| Company name | Jordan | |||||||||||||||||||||||||||||||
| Scenario Table 1 | ||||||||||||||||||||||||||||||||
| Jordan Income Statement Under Absorption Costing | Jordan Income Statement Under Absorption Costing | |||||||||||||||||||||||||||||||
| 2016 ($) | 2017 ($) | 2016 ($) | 2017 ($) | |||||||||||||||||||||||||||||
| Sales ($45 per unit) | 828,000 | 1,620,000 | Sales ($45 per unit) | 828,000 | 1,620,000 | |||||||||||||||||||||||||||
| 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 | 208,000 | 380,000 | Gross margin | 208,000 | 380,000 | |||||||||||||||||||||||||||
| Selling and administrative expenses | 261,000 | 306,000 | Selling and administrative expenses | 261,000 | 306,000 | |||||||||||||||||||||||||||
| Net income/loss | (53,000) | 74,000 | Net income/loss | (53,000) | 74,000 | |||||||||||||||||||||||||||
| Scenario Table 2 | Selling price | $45 | per unit | |||||||||||||||||||||||||||||
| Units Produced and Sold | COGS | $31 | per unit | |||||||||||||||||||||||||||||
| 2016 | 2017 | Variable selling and administrative cost | $2.25 | per unit | ||||||||||||||||||||||||||||
| Units produced | 30,000 | 30,000 | ||||||||||||||||||||||||||||||
| Units sold | 20,000 | 40,000 | ||||||||||||||||||||||||||||||
| Units Produced and Sold | ||||||||||||||||||||||||||||||||
| · | During 2016 and 2017, the variable cost per unit stayed the same. | 2016 | 2017 | |||||||||||||||||||||||||||||
| · | During 2016 and 2017, 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 | $9 | ||||||||||||||||||||||||||||||
| 2016 ($) | 2017 ($) | Variable overhead | $7 | |||||||||||||||||||||||||||||
| Variable selling and administrative ($2.25 per unit) | 45,000 | 90,000 | Fixed overhead ($300,000 / 30,000 units) | $10 | ||||||||||||||||||||||||||||
| Fixed selling and administrative | 216,000 | 216,000 | Total product cost per unit | $31 | ||||||||||||||||||||||||||||
| Total selling and administrative | 261,000 | 306,000 | ||||||||||||||||||||||||||||||
| Reconcile the variable costing income to the absorption costing income for these two years. | ||||||||||||||||||||||||||||||||
| Sales and Administrative Expense | ||||||||||||||||||||||||||||||||
| 2016 ($) | 2017 ($) | |||||||||||||||||||||||||||||||
| Reconciliation of Variable Costing Income to Absorption Costing Income | Variable selling and administrative ($2.25 per unit) | 45,000 | 90,000 | |||||||||||||||||||||||||||||
| 2016 ($) | 2017 ($) | Fixed selling and administrative | 216,000 | 216,000 | ||||||||||||||||||||||||||||
| Variable costing income | Total selling and administrative | 261,000 | 306,000 | |||||||||||||||||||||||||||||
| Fixed overhead in ending inventory | ||||||||||||||||||||||||||||||||
| Fixed overhead in beginning inventory | ||||||||||||||||||||||||||||||||
| Absorption costing income | ||||||||||||||||||||||||||||||||
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