Roessler Scandinavia is a new division of Roessler International.  The division manufactures spangles in a single manufacturing facility.  Following is pertinent data for 2005, its first year of operations (hence, there is no beginning inventory).

Annual factory capacity (in units):                 300,000

Units manufactured in 2005:                          240,000

Sales demand:                                                 180,000

Variable manufacturing cost per unit:                        $12

Fixed manufacturing overhead costs:             $1,450,000

Variable non-manufacturing costs per unit:   $3

            (this is a sales commission)

Fixed non-manufacturing costs:                     $110,000

Sales price per unit:                                        $ 30

The sales demand, per-unit sales price, per-unit variable manufacturing cost, per-unit sales commission, and total fixed non-manufacturing costs are all expected to remain unchanged in 2006 from 2005.  Fixed manufacturing overhead costs are expected to increase by 10%.

Required:

Calculate 2005 income and projected 2006 income under Absorption Costing, under each of the following sets of assumptions:

a)  The company accounts for inventory using FIFO, allocates fixed manufacturing overhead costs based on units produced, manufactures enough units in 2006 to plan for 90,000 units in ending inventory at the end of the year.

b)  The company accounts for inventory using FIFO, allocates fixed manufacturing overhead costs based on units produced, manufactures at capacity in 2006.

c)  The company accounts for inventory using LIFO, allocates fixed manufacturing overhead costs based on units produced, manufactures enough units in 2006 to plan for 90,000 units in ending inventory at the end of the year.

d)  The company accounts for inventory using LIFO, allocates fixed manufacturing overhead costs based on units produced, manufactures at capacity in 2006.

e)  Calculate 2005 income and projected 2006 income under Variable Costing, under FIFO, assuming the company manufactures enough units in 2006 to plan for 90,000 units in ending inventory at the end of the year.

Answer rating: 100% (QA)

a The following table shows the income statement for 2005 A B 1 Particulars Amount 2 Uni... View the full answer