Giant Jets is a French company that produces jet airplanes for commercial cargo companies. The selling price (in euros) per jet is €1,000,000. Currently the company uses actual volumes to allocate fixed production overhead to units. However, Giant Jets’ accountant is considering the use of standard costs to produce the absorption income statements. The company anticipates the following.
Variable costs per jet:
Direct materials ........... €200,000
Direct labor .............. 150,000
Variable production overhead ....... 50,000
Variable selling ........... 100,000
Fixed costs per year:
Fixed production overhead ...... €600,000
Fixed administrative and selling ..... 100,000

A. Prepare income statements using the variable costing method.
B. Prepare income statements using the throughput costing method.
C. Prepare income statements using the absorption costing method. Allocate fixed overhead using actual units produced in the denominator.
D. In your own words, define normal capacity.
E. Prepare an income statement using the absorption cost method and choose a denominator level that represents normal capacity. Explain your choice for normal capacity.
F. Prepare a brief summary that reconciles the incomes among the four income statements (parts (A), (B), (C), and (E)) for eachyear.

  • CreatedJanuary 26, 2015
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