Time Keeper, Inc., produces wrist watches. The company has no finished goods inventory at the beginning...

 

  

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Time Keeper, Inc., produces wrist watches. The company has no finished goods inventory at the beginning of year 1. The following information pertains to Time Keeper, Inc. Absorption Costing Versus Variable Costing. Annual production Sales price Variable production cost per unit Direct materials 50,000 units $40 per unit $10 Direct labor $25 per unit Manufacturing overhead Fixed production costs 12 $150,000 each year; $3 per unit at 50,000 units of production Variable selling and administrative cost $1 per unit Fixed selling and administrative cost $100,000 each year Required: a. All 50,000 units produced during year 1 are sold during year 1. 1. Prepare a traditional income statement assuming the company uses absorption costing. 2. Prepare a contribution margin income statement assuming the company uses variable costing. b. Although 50,000 units are produced during year 2, only 40,000 are sold during the year. The remaining 10,000 units are in finished goods inventory at the end of year 2. 1. Prepare a traditional income statement assuming the company uses absorption costing. 2. Prepare a contribution margin income statement assuming the company uses variable costing. 4 3. Absorption Costing versus Variable Costing 6 a. (1) Traditional income statement (absorption costing), year 1: Salos Cast of goods sold Gross margin Selling and adıministrative costs Operating profit 9 10 11 12 13 "(2) Contribution margin income statement (variable costing), year I: 14 16 Sales 17 Variable costs Cost of goods sold Selling and administration. Total variable costs Contribution margin 18 19 20 21 22 Fixed costs Cost of goods sold Selling and administration Total fixed costs 23 24 25 Operuting profit S 450,000 26 27 b. (1) Traditional income statement (absorption costing), year 2: 28 30 Sales Cost of goods sold Gross margin Selling and administrative costs Operating profit 31 32 33 $ 340,000 34 35 36 (2) Contribution margin income statement (variable costing), year 2: Sales Variable costs 38 39 Cost of goods sold Selling and administration Total variable costs Contribution margin Fixed costs Cost of goods sold Selling and administration Total fixed costs Operating profit 40 41 42 43 44 45 46 47 48 | | | | | Time Keeper, Inc., produces wrist watches. The company has no finished goods inventory at the beginning of year 1. The following information pertains to Time Keeper, Inc. Absorption Costing Versus Variable Costing. Annual production Sales price Variable production cost per unit Direct materials 50,000 units $40 per unit $10 Direct labor $25 per unit Manufacturing overhead Fixed production costs 12 $150,000 each year; $3 per unit at 50,000 units of production Variable selling and administrative cost $1 per unit Fixed selling and administrative cost $100,000 each year Required: a. All 50,000 units produced during year 1 are sold during year 1. 1. Prepare a traditional income statement assuming the company uses absorption costing. 2. Prepare a contribution margin income statement assuming the company uses variable costing. b. Although 50,000 units are produced during year 2, only 40,000 are sold during the year. The remaining 10,000 units are in finished goods inventory at the end of year 2. 1. Prepare a traditional income statement assuming the company uses absorption costing. 2. Prepare a contribution margin income statement assuming the company uses variable costing. 4 3. Absorption Costing versus Variable Costing 6 a. (1) Traditional income statement (absorption costing), year 1: Salos Cast of goods sold Gross margin Selling and adıministrative costs Operating profit 9 10 11 12 13 "(2) Contribution margin income statement (variable costing), year I: 14 16 Sales 17 Variable costs Cost of goods sold Selling and administration. Total variable costs Contribution margin 18 19 20 21 22 Fixed costs Cost of goods sold Selling and administration Total fixed costs 23 24 25 Operuting profit S 450,000 26 27 b. (1) Traditional income statement (absorption costing), year 2: 28 30 Sales Cost of goods sold Gross margin Selling and administrative costs Operating profit 31 32 33 $ 340,000 34 35 36 (2) Contribution margin income statement (variable costing), year 2: Sales Variable costs 38 39 Cost of goods sold Selling and administration Total variable costs Contribution margin Fixed costs Cost of goods sold Selling and administration Total fixed costs Operating profit 40 41 42 43 44 45 46 47 48 | | | | |

Answer rating: 100% (QA)

a 1 Traditional Income Statement absorption costing year 1 Amount in Sales 50000 units40 per unit 2000000 Less Cost of goods sold 50000 units253 per u... View the full answer