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Variable and Absorption Costing

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AFN COMPANY
Income Statement
For the Year Ended December 31
(Variable Costing)

AFN COMPANY
Income Statement
For the Year Ended December 31
(Variable Costing)

2005 2006

Sales
Variable expenses
Variable cost of goods sold
Inventory, January 1
Variable manufacturing
&#8194;&#8194;costs
Cost of goods available
&#8194;&#8194;for sale
Inventory, December 31
Variable cost of goods
&#8194;&#8194;sold
Variable selling expenses
Total variable expenses
Contribution margin
Fixed expenses
Total fixed expenses
Income from operations \$6,000,000

&#8194;&#8194; &#8194;&#8194;&#8194; &#8194;&#8194;0

&#8194;xxx

&#8194;xxx
&#8194;&#8194; 300,000

&#8194;&#8194; xxx,000
&#8194;&#8194; xxx,000
&#8194;xxx
&#8194;4,500,000

&#8194;xxx
&#8194;&#8194; xxx
xxx
\$1,500,000

&#8194;(1)

&#8194;(2)

&#8194;(3) \$8,000,000

&#8194;&#8194; xxx

&#8194;&#8194; xxx

xxx
&#8194;&#8194; &#8194;&#8194;&#8194; &#8194;&#8194;0

&#8194;x,xxx,000
&#8194;&#8194; xxx,000
xxx
&#8194;6,000,000

&#8194;xxx
&#8194;&#8194; xxx
&#8194;xxx
\$3,000,000

&#8194;(4)

&#8194;(5)

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Solution Summary

The solution explains how to prepare income statement using variable costing and absorption costing

\$2.19

Emerson Corporation: Throughput costing, absorption costing and variable costing

Emerson Corporation which uses throughput costing just completed its first year of operations. Planned and actual production equaled 10,000 units and sales total 9600 units at \$72 per unit. Costs data for the year are as follows:

Direct material per unit \$12.00
Conversion Costs
Direct Labor \$45,000
Variable per unit \$8.00
Fixed \$118,000

The company classifies only direct material as a throughput cost.

1. Compute the company's total cost for the year assuming that variable manufacturing costs are driven by the number of units produced and variable selling and administrative costs are driven by the number of units sold.

2. How much of this cost would be held in year-end inventory under (a) absorption costing (b) variable costing and (c) throughput costing.

3. How much of the company's total cost for the year would be included as an expense on the period's income statement under (a) absorption costing (b) variable costing and (c) throughput costing.

4. Prepare Emerson's throughput costing income statement.

5. Show the solution if the following information was changed: direct material cost is \$11.00 per unit and the total direct labor cost is \$46,000.

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