Absorption Statement Absorption costing does not distinguish between variabie and fixed costs. All manufacturing costs are included in the cost of goods sold Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,360,000 Cost of goods sold: Cost of goods manufactured 5840,000 Ending Inventory (326,000) Total cost of goods sold (714,000) Grow profit 5646,000 Selling and administrative expenses (286,000) Operating income $360,000 Variable statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement indudes a computation of manufacturing margin Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 Sales $1,360,000 Variable cost of goods sold: Variable cost of goods manufactured $600,000 Ending inventory (90,000) Check My Workere Check My Works remaining Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 Sales $1,360,000 Variable cost of goods sold: Variable cost of goods manufactured $600,000 Ending inventory (90,000) Total variable cost of goods sold (510,000) Manufacturing margin $850,000 Variable selling and administrative expenses 1221,000) Contribution margin $629,000 Fixed costs Fored manufacturing costs $240,000 Pored selling and administrative expenses 65.000 Total fixed costs (305,000) Operating income $324,000 Method Comparison Review the income statements on the Absorption Statement and variable Statement, the complete the following table. The company's sales price per unit is $80, and the number of units in ending inventory is 3,000. There was no beginning inventory Item Amount Check My Workere Check My Works remaining Manufacturing Decisions Whenever the units manufactured differ from the units sold, finished goods inventory is attected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision-making Stuation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful All costs are controllable in the long run by someone within a business. For a given level of management, costs may be controlate contorno controllable costs The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the absorption Statement and the variable Statement, he notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 unts, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unt variable costs, unit sales price, and the sales levels are the same. Complete questions (1)-(4) that follow. If the answers zero, enter"0" 1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total flowed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels Operating Income Original Production Original Production Additional 10,000 Additional 10,000 Level-Absorption Level-Variable Units-Absorption Units-Variable 310,000 x 250,000 X 370,000 x 250,000 x Method Comparison Item Review the income statements on the Absorption Statement and variable Statement, then complete the following table. The company's sales price per unit is $30, and the number of unitsin ending inventory is 3,000. There was no beginning inventory Amount Number of units sold 17,000 Variable sales and administrative cost per unit Number of units manufactured 20,000 Variable cost of goods manufactured per unit 30 Fixed manufacturing cost per unit Creek My W Review the definitions of the items in the table, and think backwards from one of the income statements to get the desired velvet Manufacturing Decisions Whenever the units manufactured differ from the units sold, Finished goods inventory is affected. In analyzing operating income, such increases and decreases could be misinterpreted as operating efficiencies or inefficiencies. Each decision- making situation should be carefully analyzed in deciding whether absorption or variable costing reporting would be more useful All costs are controllable in the long run by someone within a business. For a aglven level of management, costs may be controllable or no controllable costs. The production manager for Saxon, Inc. is worried because the company is not showing a high enough profit. Looking at the income statements on the Absorption Statement and the Variable Statement, the notices that the operating income is higher on the absorption cost income statement. He is considering manufacturing another 10,000 units, up to the company's capacity for manufacturing, in the coming year. He reasons that this will boost operating income and satisfy the company's owner that the company is sufficiently profitable. Although the total units manufactured changes, assume that total fixed costs, unit variable costs, un sales price, and the sales levels are the same. Complete Gestions (1)-(4) that follow. If the answers zero, enter"0