The Excel worksheet form that appears below is to be used to recreate portions of Review Problem 1 relating to Dexter Corporation. Download the workbook containing this form from Connect, where you will also receive instructions about how to use this worksheet form.

You should proceed to the requirements below only after completing your worksheet. The LIFO inventory flow assumption is used throughout this problem.

Required:
Check your worksheet by changing the units sold in the Data to 6,000 for Year 2. The cost of goods sold under absorption costing for Year 2 should now be $240,000. If it isn’t, check cell C41.
The formula in this cell should be =IF(C26Why is the absorption costing net operating income now equal to the variable costing net operating income in Year 2?

Enter the following data from a different company into your worksheet:

Is the net operating income under variable costing different in Year 1 and Year 2? Why or why not?
Explain the relation between the net operating income under absorption costing and variable costing in Year 1. Explain the relation between the net operating income under absorption costing and variable costing in Year 2.
At the end of Year 1, the company’s board of directors set a target for Year 2 of net operating income of $500,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 50,000 units. Would this change result in a bonus being paid to the CEO? Do you think this change would be in the best interests of the company? What is likely to happen in Year 3 to the absorption costing net operating income if sales remain constant at 12,000 units per year?

Transcribed Image Text:

1 Chapter 7: Applying Excel 3 Data 4 Selling price per unit 5 Manufacturing costs: 6 Variable per unit produced 7 Direct materials 8 Direct labor 9 Variable manufacturing overhead 10 Fixed manufacturing overhead per year 11 Selling and administrative expenses: 12 Variable per unit sold 13 Fixed per year 14 15 16 Units in beginning inventory 17 Units produced during the year 18 Units sold during the year 19 60 $50 $11 $6 $3 $120,000 54 $70.000 Year 1 Year 2 0 10.000 6,000 8.000 8,000 20 Enter a formula into each of the calls marked with a ? below 21 Review Problem 1: Contrasting Variable and Absorption Costing 22 23 Compute the Ending Inventory 24 25 Units in beginning inventory 26 Units produced during the year 27 Units sold during the year Year 1 Year 2 0 7 ? " 2 2 2 28 Units in ending inventory 29 30 Compute the Absorption Costing Unit Product Cost 31 32 Direct materials 34 Variable manufacturing overhead 33 Direct labor 35 Fixed manufacturing overhead 36 Absorption costing unit product cost 37 Year 1 Year 2 ? 2 ? 2 ? ? ? 2 ? 38 Construct the Absorption Costing Income Statement 39 40 Sales 41 Cost of goods sold 42 Gross margin 43 Selling and administrative expenses 44 Net operating income 45 Year 1 Year 2 ? ? ? ? ? ? ? ? 46 Compute the Variable Costing Unit Product Cost 47 48 Direct materials 49 Direct labor Year 1 Year 2 ? ? 2 7 50 Variable manufacturing overhead 51 Vanable coating unit product cost 52 53 Construct the Variable Costing Income Statement 54 55 Sales 56 Variable expenses 57 Variable cost of goods sold Year 1 ? D E Year 2 7 58 Variable selling and administrative expenses ? ? ? 2 59 Contribution margin 60 Fixed expenses 61 Fixed manufacturing overhead 62 Foxxed selling and administrative expenses 63 Net operating income 64 Chapter 7 Form Filed in Chapte ? ? ? ? ?