Quality Harvesters Co. is a farming corporation that grows and sells crops in the Midwest. The company is publicly traded on the stock market: however, management prefers to use variable costing for decision purposes. The company's books are adjusted to arrive at Absorption Income for financial reporting purposes.
The company reported the following financial information for the past month:

Variable Net Income ........................................................................ $1,200,000

Sales ..................................................................................................... 2,000 truckloads of produce

Fixed manufacturing costs rate per truckload ................................ $600

Variable SGA costs per truckload ...................................................... $50

1. Fixed SGA costs (overall) .................................................................... $700,000
   The company tracks harvested crops that have not yet been shipped out as "in-process." This inventory of food increased from the equivalent of 50 hill truckloads at the beginning of the month to 75 full truckloads at the end of the month.
   What was Absorption Net Income?
2. Compute the unit product cost under variable costing. Show your work.
3. If the selling price is $3,500 per truckload and in total 1,800 truckloads are sold, please calculate the profit or loss under the absorption costing.
4. If the selling price is $3,500 per truckload and in total 1,800 truckloads are sold, please calculate the profit or loss under the variable costing.
5. If next year the company plans to produce 2,000 truckloads and sell 2,200 truckloads, which costing method generates higher profit?
6. If the company has sufficient production capacity, currently it receives a special one-time order request from the state government. Because the state government is experiencing financial problems due to a tightened budget, the state is willing to pay only $2,000/truckload for the same product. Consider the company’s profit, will you accept the order from the government or not?

Answer rating: 100% (QA)

Part 1 Unit product cost under absorption Costing Direct Material 700 Direct Labor 750 Variable Manu... View the full answer