Brown Boot Company Income statement December 31, 20X2-20X4 (20X5 budget) 20X2 20X3 20X4 20X5 budget Volume...

  

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Brown Boot Company Income statement December 31, 20X2-20X4 (20X5 budget) 20X2 20X3 20X4 20X5 budget Volume produced (pairs) Volume sold (pairs) Selling price per pair 1,275,000 1,274,500 97.15 $ 1,250,000 1,225,000 97.15 $ 1,250,000 1,197,500 96.60 $ 1,200,000 1,175,000 96.50 $ (all figures in '000s) $ 123,818 $ Total revenue Cost of goods sold (Schedule 1) Gross margin Variable selling and administrative expense $ Fixed selling and administrative expense $ Total expenses Surplus (deficit) 119,009 $ 115,679 $ 113,388 81.829 41,989 $ 87.443 31,566 $ 85,929 $ 29,750 78.216 35,172 $ 7,429 $ 5,950 $ 8,098 $ 7,937 18.789 $ 26.218 $ $4 17.685 $ 23.635 $ 7.931 $ 17.035 $ 17.035 24.972 10.200. 25.133 2$ 15.771 $ 4.617 $ Brown Boot Company Schedule of cost of goods sold December 31, 20X2-20X4 (20X5 budget) (in $'000s) 20X2 Units 20X3 20X4 20X5 budget Units Cost Cost Units Cost Units Cost Beginning finished goods inventory 20,000 1,302 20,500 1,316 45,500 3,253 98,000 7,033 Add: Manufactured (Schedule 2) Available for sale 1,275,000 1,295,000 81,843 1,250,000 89,380 1,250,000 89,709 1,200,000 79,312 83,145 1,270,500 90,696 1,295,500 92,962 1,298,000 86,345 Deduct: Ending finished goods inventory Cost of goods sold 98,000 81,829 1,225,000 87,443 1,197,500 85,929 1,175,000 78,216 1,316 3,253 7,033 8,129 20,500 1,274,500 45,500 123,000 Note: For clarity, units are shown in full while costs are shown in '000s. %24 Schedule 2– Cost of goods manufactured Brown Boot Company Schedule of cost of goods manufactured December 31, 20X2-20X4 (20X5 budget) (in $'000s) 20X5 20X2 20X3 20X4 budget 43,992 22,308 $ 47,239 46,786 $ 28,135 Direct materials used $ 50,715 $ 25,340 Direct labour 22,504 Overhead applied' Variable overhead applied $ Fixed overhead applied Total manufacturing overhead costs applied $ $ 8,200 $ 5,125 $ 9,100 $ 5,688 $ 7,446 7,392 $ 4,654 5,620 12,100 $ 13,325 $ 14,788 $ 13,012 Total cost of goods manufactured2 $81,843 $ 89,380 $ 89,709 $ 79,312 1 BBC uses first in, first out inventory costing and a normal costing system to apply overhead to inventory. Over- or underapplied overhead is negligible. 2 Beginning and ending work-in-process inventory is not considered because the difference between beginning and ending balances is negligible. The cost of goods sold schedule shows a buildup of product that is putting a strain on the warehouse. The operations manager has noted that word from the marketing team is that the company needs to produce to increase the bottom line and keep unit costs low. Required: a) Using the information provided, prepare a variable costing income statement that incorporates the cost of goods sold for years 20X3 and 20X4 (in '000s). Assume for variable costing that the opening inventory for 20X3 is $1,241,000. (8 marks) b) Prepare a reconciliation of the differences in absorption costing and variable costing incomes for both years (2 marks). Explain the following: (3 marks) What effect will building ending inventory balances have on profit? What reason might the marketing manager have for increasing inventory levels? Provide numerical data to support the reason. What are the ethical issues that management needs to address, if any? Brown Boot Company Income statement December 31, 20X2-20X4 (20X5 budget) 20X2 20X3 20X4 20X5 budget Volume produced (pairs) Volume sold (pairs) Selling price per pair 1,275,000 1,274,500 97.15 $ 1,250,000 1,225,000 97.15 $ 1,250,000 1,197,500 96.60 $ 1,200,000 1,175,000 96.50 $ (all figures in '000s) $ 123,818 $ Total revenue Cost of goods sold (Schedule 1) Gross margin Variable selling and administrative expense $ Fixed selling and administrative expense $ Total expenses Surplus (deficit) 119,009 $ 115,679 $ 113,388 81.829 41,989 $ 87.443 31,566 $ 85,929 $ 29,750 78.216 35,172 $ 7,429 $ 5,950 $ 8,098 $ 7,937 18.789 $ 26.218 $ $4 17.685 $ 23.635 $ 7.931 $ 17.035 $ 17.035 24.972 10.200. 25.133 2$ 15.771 $ 4.617 $ Brown Boot Company Schedule of cost of goods sold December 31, 20X2-20X4 (20X5 budget) (in $'000s) 20X2 Units 20X3 20X4 20X5 budget Units Cost Cost Units Cost Units Cost Beginning finished goods inventory 20,000 1,302 20,500 1,316 45,500 3,253 98,000 7,033 Add: Manufactured (Schedule 2) Available for sale 1,275,000 1,295,000 81,843 1,250,000 89,380 1,250,000 89,709 1,200,000 79,312 83,145 1,270,500 90,696 1,295,500 92,962 1,298,000 86,345 Deduct: Ending finished goods inventory Cost of goods sold 98,000 81,829 1,225,000 87,443 1,197,500 85,929 1,175,000 78,216 1,316 3,253 7,033 8,129 20,500 1,274,500 45,500 123,000 Note: For clarity, units are shown in full while costs are shown in '000s. %24 Schedule 2– Cost of goods manufactured Brown Boot Company Schedule of cost of goods manufactured December 31, 20X2-20X4 (20X5 budget) (in $'000s) 20X5 20X2 20X3 20X4 budget 43,992 22,308 $ 47,239 46,786 $ 28,135 Direct materials used $ 50,715 $ 25,340 Direct labour 22,504 Overhead applied' Variable overhead applied $ Fixed overhead applied Total manufacturing overhead costs applied $ $ 8,200 $ 5,125 $ 9,100 $ 5,688 $ 7,446 7,392 $ 4,654 5,620 12,100 $ 13,325 $ 14,788 $ 13,012 Total cost of goods manufactured2 $81,843 $ 89,380 $ 89,709 $ 79,312 1 BBC uses first in, first out inventory costing and a normal costing system to apply overhead to inventory. Over- or underapplied overhead is negligible. 2 Beginning and ending work-in-process inventory is not considered because the difference between beginning and ending balances is negligible. The cost of goods sold schedule shows a buildup of product that is putting a strain on the warehouse. The operations manager has noted that word from the marketing team is that the company needs to produce to increase the bottom line and keep unit costs low. Required: a) Using the information provided, prepare a variable costing income statement that incorporates the cost of goods sold for years 20X3 and 20X4 (in '000s). Assume for variable costing that the opening inventory for 20X3 is $1,241,000. (8 marks) b) Prepare a reconciliation of the differences in absorption costing and variable costing incomes for both years (2 marks). Explain the following: (3 marks) What effect will building ending inventory balances have on profit? What reason might the marketing manager have for increasing inventory levels? Provide numerical data to support the reason. What are the ethical issues that management needs to address, if any?

Answer rating: 100% (QA)

A BROWN BOOT COMPANY VARIABLE COSTING INCOME STATEMENT PARTICULARS 20X3 20X4 VOLUME PRODUCED 1250000 1250000 VOLUME SOLD 1225000 1197500 SELLING PRICE ... View the full answer