Question

The following price and operating cost information applies to Happy Bikers Motorcycle Company.
Price ................... $10,000 per motorcycle
Variable production costs:
Raw materials .............. $2,000 per motorcycle
Direct labor and variable overhead ...... $1,000 per motorcycle
Fixed production costs ............ $40,000 per month
Variable selling and administrative ....... $250 per motorcycle
Fixed selling and administrative ........ $40,000 per month
No beginning balance in finished goods is evident because the beginning inventory account on the balance sheet is zero. Average production is 10 motorcycles per month. Sales are seasonal, so in some months no motorcycles are produced, while in other months production is high. During the most recent month, the company produced 18 and sold 15 motorcycles.

REQUIRED
A. Prepare an income statement for the most recent month using the variable costing method.
B. Prepare an income statement for the most recent month using the absorption costing method and choose a denominator level that represents “normal” capacity.
C. Prepare an income statement for the most recent month using the throughput costing method. Assume that annual production volume is expected to continue at a high level and will average 18 motorcycles per month.
D. Prepare a schedule that reconciles the incomes among the three income statements.



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  • CreatedJanuary 26, 2015
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