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Chapter 21: Q-21-2T1 (page 1152)

Hayden Company has 50 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hayden produced 150 units and sold 200 units for \(150 each. All units incurred \)80 in variable manufacturing costs and \(20 in fixed manufacturing costs. Hayden also incurred \)7,500 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

Short Answer

Expert verified

Answer

The operating income is $2,500 under absorption costing and variable costing.

Step by step solution

01

Income statement using absorption costing

Particulars

Amount

Net sales revenue ($150*200)

$30,000

Less: Cost of goods sold ($100*200)

$20,000

Gross profit

$10,000

Less: Selling and administrative cost

$7,500

Operating Income

$2,500

02

Income statement using variable costing

Particulars

Amount

Net sales revenue ($150*200)

$30,000

Less: Variable costs ($80*200)

$16,000

Contribution margin

$14,000

Less: Fixed costs

Fixed costs of goods sold($20*200)

$4,000

Fixed selling and administrative cost

$7,500

Operating Income

$2,500

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Most popular questions from this chapter

Analyzing profitability analysis, service company Burlington Internet Services is an Internet service provider for commercial and residential customers. The company provided the following data for its two types of customers for the month of August:

For each type of customer, determine both the contribution margin per customer and the contribution margin ratio. Round to two decimal places.

Which type of service is more profitable?

Setting sales prices The Sweet Treats Company manufactures candy that is sold to food distributors. The company produces at full capacity for six months each year to meet peak demand during the “candy season” from Halloween through Valentine’s Day. During the other six months of the year, the manufacturing facility operates at 75% of capacity. The Sweet Treats Company provides the following data for the year:

Cases of candy produced and sold 1,800,000 cases Sales price $ 37.00 per case Variable manufacturing costs 20.00 per case Fixed manufacturing costs 6,400,000 per year Variable selling and administrative costs 2.00 per case Fixed selling and administrative costs 3,500,000 per year The Sweet Treats Company receives an offer to produce 13,000 cases of candy for a special event. This is a one-time opportunity during a period when the company has excess capacity. What is the minimum sales price The Sweet Treats Company should accept for the order? Explain why

Analyzing profitability

Camden Company has divided its business into segments based on sales territories: East Coast, Midland, and West Coast. Following are financial data for 2018:

East Coast

Midland

West Coast

Units sold

71

69

53

Sales price per unit

\(10,300

\)13,600

\(12,000

Variable cost per unit

6,283

7,072

7,080

Prepare an income statement for Camden Company for 2018 using the contribution margin format assuming total fixed costs for the company were \)435,000. Include columns for each business segment and a column for the total company.

Explain how the sales mix can affect the profitability of a company.

Using variable costing, service company Refer to Exercise E21-25. The commercial business segment provided services to 200 customers. The residential business segment provided services to 400 customers. Determine the average amount Sherman Company charged each type of customer for services, the average variable cost per customer, and the average contribution margin per customer, rounded to two decimal places. What caused the difference in contribution margin in the two segments?
See all solutions

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