USE "ACCOUNTING REFERENCE" DOC ATTACHMENT TO COMPLETE PROBLEM

The Desk PC Division has prepared comparative income statements using the?variable-costing and?absorption-costing methods.

Suppose that in 20 Upper 20X1 production was 17,000 computers instead of 15,600 ?computers, and sales were 16,600 computers. Also assume that the net variances for all variable manufacturing costs were $20,000?, unfavorable. Also assume that actual fixed manufacturing costs were $1,212,000.

Prepare income statements for 20 Upper 20X1 under variable costing and under absorption costing.

Begin by preparing the variable costing income statement. ?(Enter amounts in thousands of? dollars.)

Desk PC Division

Income Statement (Variable Costing)

For the Year 20X1

(in thousands of dollars)

Sales

Opening inventory, at variable standard costs of $100

Add: variable cost of goods manufactured

Available for sale

Deduct: ending inventory, at variable standard cost of $100

Variable cost of goods sold, at standard

Net flexible-budget variances for all variable costs, unfavorable

Variable cost of goods sold, at actual

Variable selling expenses, at 5% of dollar sales

Total variable costs charged against sales

Contribution margin

Fixed factory overhead

Fixed selling and administrative expenses

Total fixed expenses

Operating income

Now prepare the absorption costing income statement. ?(Enter amounts in thousands of dollars. Use parentheses or a minus sign for variances to be? subtracted.)

Desk PC Division

Income Statement (Absorption Costing)

For the Year 20X1

(in thousands of dollars)

Sales

Opening inventory, at standard cost of $170

Cost of goods manufactured, at standard

Available for sale

Deduct: ending inventory at standard

Cost of goods sold, at standard

Net flexible-budget variances for all variable manufacturing costs

Fixed factory overhead flexible-budget variance

Production-volume variance

Total variances

Cost of goods sold, at actual

Gross profit, at "actual"

Selling and administrative expenses

Variable

Fixed

Operating income

Requirement 2. Explain why operating income was different under variable costing and absorption costing. Show your calculations. ?(Enter amounts in dollars instead of in? thousands.)

The difference in operating income is attributable to the

increase or decrease in inventory levels. This means that ?$________ of fixed factory overhead ?(_____) units x fixed rate of ?$(_____?) was held back in inventory under

absorption ?costing or variable costing, whereas all fixed overhead was released as expense under

variable costing or absorption costing.

Please help, please and thank you!

20X0 Sales, 15,600 and 17,400 computers, respectively Variable expenses: Variable manufacturing cost of goods sold Opening inventory, at standard variable costs of $100 Add: variable cost of goods manufactured at standard, 18,000 and 15,600 computers, respectively Available for sale, 18,000 computers in each year Deduct: ending inventory, at standard variable cost of $100 Variable manufacturing cost of goods sold Variable selling expenses, at 5% of dollar sales Total variable expenses Contribution margin Fixed expenses: Fixed factory overhead Fixed selling and administrative expenses Total fixed expenses Operating income, variable costing *2 comma 4002,400 computers at $100100 = $ 240 comma 000$240,000. **600600 computers at $100100 = $ 60 comma 000 20X1 $6,240,000 $6,960,000 $0 $240,000 1,800,000 1,560,000 $1,800,000 $1,800,000 240,000 * 60,000 ** $1,560,000 312,000 $1,740,000 348,000 1,872,000 2,088,000 $4,368,000 $4,872,000 $1,162,000 500,000 $1,162,000 500,000 1,662,000 1,662,000 $2,706,000 $3,210,000 Sales Cost of goods sold: Opening inventory, at standard absorption cost of $170* Cost of goods manufactured at standard of $170 Available for sale Deduct: ending inventory at standard absorption cost of $170 20X0 $6,240,000 20X1 $6,960,000 $0 $408,000 3,060,000 2,652,000 3,060,000 3,060,000 408,000 102,000 Cost of goods sold, at standard Gross profit at standard Production-volume variance** Gross margin or gross profit, at "actual" Selling and administrative expenses Operating income *Variable cost Fixed cost ($1,162,000 / 16,600) 2,652,000 2,958,000 3,588,000 98,000 F 4,002,000 70,000 U 3,686,000 812,000 3,932,000 848,000 $2,874,000 $3,084,000 $100 70 $170 Standard absorption cost **Computation of production-volume variance based on expected volume of production of 16 comma 60016,600 computers: 20X0 $98,000 F (18,000 - 16,600) x $70 70,000 U (15,600 - 16,600) x $70 20X1 Two years together $28,000 F (33,600 - 33,200) x $70 U = Unfavorable, F = Favorable