ACCOUNTING:

Please fill in missing blanks and answer question.

1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the onginal 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 fixed costs, unit variable cos, 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 239,000 191,000 2. What is the change in operating income from broducing 10,000 additional units under aboorption costing 3. What is the change in operating income from producing 10,000 additional units under variable conting? 0 4. What would be your recommendation to the production marsager? a. Do not produce the extra 10,000 units. The increase in operating income under absorption coding is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, finanono, and obsolescence costs b. Produce the extra 10.000 units. Operating income will be increased, and the production manager will receive praise for creatino higher profits. 6. Do not produce the extra 10,000 units. Operating income does not change under absorption costing when the additional units are produced, d. Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold. Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,200,000 $840,000 (168,000) Cost of goods sold: Cost of goods manufactured Ending inventory Total cost of goods sold Gross profit Selling and administrative expenses Operating income (672,000) $528,000 (289,000) $239,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs- margin. Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 Sales $1,200,000 $600,000 (120,000) Variable cost of goods sold: Variable cost of goods manufactured Ending inventory Total variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin (480,000) $720,000 (224,000) $496,000 Fixed costs: $240,000 Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs 65,000 (305,000) Operating income $191,000 1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the onginal 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 fixed costs, unit variable cos, 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 239,000 191,000 2. What is the change in operating income from broducing 10,000 additional units under aboorption costing 3. What is the change in operating income from producing 10,000 additional units under variable conting? 0 4. What would be your recommendation to the production marsager? a. Do not produce the extra 10,000 units. The increase in operating income under absorption coding is due to fixed manufacturing costs being held in inventory, and the additional inventory will lead to higher handling, storage, finanono, and obsolescence costs b. Produce the extra 10.000 units. Operating income will be increased, and the production manager will receive praise for creatino higher profits. 6. Do not produce the extra 10,000 units. Operating income does not change under absorption costing when the additional units are produced, d. Produce the extra 10,000 units. It's always a good idea to have extra units on hand and keep the factory operating at capacity, even if all the units are not sold. Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,200,000 $840,000 (168,000) Cost of goods sold: Cost of goods manufactured Ending inventory Total cost of goods sold Gross profit Selling and administrative expenses Operating income (672,000) $528,000 (289,000) $239,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs- margin. Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 Sales $1,200,000 $600,000 (120,000) Variable cost of goods sold: Variable cost of goods manufactured Ending inventory Total variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin (480,000) $720,000 (224,000) $496,000 Fixed costs: $240,000 Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs 65,000 (305,000) Operating income $191,000