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Oliver Inc. Rocking Chairs: Accounting Problems

Oliver Inc. produced an oak rocking chair that is designed to ease back problems. The chairs sell for $200 each. Results from last year's operations are as follows:

Inventory and production data:
Units in beginning inventory 0
Units produced during the year 20,000
Units sold during the year 18,000

Variable costs (unit):
Direct materials $ 70.00
Direct labor 20.00
Variable manufacturing overhead 15.00
Variable selling and administrative 10.00

Fixed costs:
Fixed manufacturing overhead $500,000
Fixed selling and administrative $530,000

A. Compute the unit product cost for one rocking chair, assuming the company uses variable costing.
B. Prepare an income statement based on variable costing.
C. Compute the unit product cost for one rocking chair assuming the company uses absorption costing.
D. D. Prepare an income statement based on absorption costing.
E. Compare the two income statements. What causes the net income to differ?
F. If the company produced 18,000 chairs and sold 20,000 chairs (assume that the additional 2,000 income statements? In other words, which method provides the higher net income?

Solution Summary

This solution provides assistance with the accounting problems for Oliver Inc.