The Johnson Company produces a very popular product. The company had the following results for its the last two years:
Cost of goods sold
Net operating income (loss)
Additional information about the company is as follows:
In Year 2014, the company produced and sold 20,000 units of their product product. In 2015, the company also sold 20,000 units, but increased production to 25,000 units. The company' variable production cost is $6 per unit and its fixed manufacturing overhead cost is $300,000 per year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production. Variable selling and administrative expenses are $1 per units sold.
- Compute the unit product cost for each year under absorption costing and under variable costing.
- Prepare an income statement for each year, using the contribution approach with variable costing.
- Reconcile the variable costing and absorption costing income figures for each year.
- Explain why the net operating income for Year 2015 under absorption costing was higher than the net operating income for Year 2014, although the same number of units were sold in each year.
Please find the solutions attached.
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Abbitt Company, which has only one product, has provided the following data concerning its most recent month of operations:
19. What is the unit product cost for the month under variable costing?
20. What is the unit product cost for the month under absorption costing?
21. The total contribution margin for the month under the variable costing approach is:
22. The total gross margin for the month under the absorption costing approach is:
23. What is the net operating income for the month under variable costing?
24. What is the net operating income for the month under absorption costing?