BBG Corporation manufactures a synthetic element, pixie dust. Management was surprised to learn that income before taxes

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BBG Corporation manufactures a synthetic element, pixie dust. Management was surprised to learn that income before taxes had dropped even though the sales volume had increased. Steps had been taken during the year to improve profitability. The steps included raising the selling price by 12% because of a 10% increase in production costs, and instructing the selling and administrative departments to spend no more this year than last year. Both changes were implemented at the beginning of the year.
BBG's accounting department prepared and distributed to top management the comparative income statements and related financial information that follow (BBG uses the FIFO inventory method for finished goods):
BBG CORPORATION
Comparative
Statements of Operating Income
(In thousands)
BBG Corporation manufactures a synthetic element, pixie dust. Management was

BBG CORPORATION
Selected
Operating and Financial Data

BBG Corporation manufactures a synthetic element, pixie dust. Management was

Instructions
(a) Explain to management why net income decreased despite the increases in sales price and sales volume.
(b) It has been proposed that the company use variable costing for its internal reporting. Prepare the variable-costing income statement for 2012.
(c) Reconcile the difference in income before taxes using the absorption-costing method currently used by BBG and the variable-costing method proposed for 2012?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Related Book For  book-img-for-question

Managerial Accounting Tools for Business Decision Making

ISBN: 978-1118033890

3rd Canadian edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly

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