Question

Dilithium Batteries is a division of Enterprise Corporation. The division manufactures and sells a long-life battery used in a wide variety of applications. During the coming year, it expects to sell 60,000 units for $33 per unit. Nyota Uthura is the division manager. She is considering producing either 60,000 or 90,000 units during the period. Other information is presented in the schedule.
Division Information for 2017
Beginning inventory 0
Expected sales in units 60,000
Selling price per unit $35
Variable manufacturing costs per unit $16
Fixed manufacturing overhead costs (total) $540,000
Fixed manufacturing overhead costs per unit:
Based on 60,000 units $9 per unit ($540,000 ÷ 60,000)
Based on 90,000 units $6 per unit ($540,000 ÷ 90,000)
Manufacturing cost per unit:
Based on 60,000 units $25 per unit ($16 variable + $9 fixed)
Based on 90,000 units $22 per unit ($16 variable + $6 fixed)
Variable selling and administrative expenses $2
Fixed selling and administrative expenses (total) $50,000

Required:
(1) Prepare an absorption costing income statement, with one column showing the results if 60,000 units are produced and one column showing the results if 90,000 units are produced.
(2) Prepare a variable costing income statement, with one column showing the results if 60,000 units are produced and one column showing the results if 90,000 units are produced.

Answer 1

Answer:

Net Profit Under Absorption Costing for 60,000 units = $ 430,000                   for 90,000 units = $ 940,000

Net Profit  Under Variable Costing for 60,000 units = $ 250,000   for 90,000 units = $ 940,000

Explanation:

Enterprise Corporation

Dilithium Batteries

Absorption Costing Income Statement,

                                                                               

                                                           60,000                 90,000

Sales                                               2100,000               3150,000

Manufacturing Costs                     1500,000                1980,000

Gross Profit                                    600,000                1170,000

Variable Selling and

Administrative Expenses              120,000                   180,000

Fixed Selling & Ad. Expenses       50,000                      50,000

Net Profit                                        430,000                   940,000

Enterprise Corporation

Dilithium Batteries

Variable Costing Income Statement,

                                                                               

                                                           60,000                 90,000

Sales                                               2100,000               3150,000

Variable

Manufacturing Costs                     960,000                1440,000

Variable Selling and

Administrative Expenses              120,000                   180,000

Contribution Margin                    840,000                1530,000

Fixed manufacturing overhead   540,000                  540,000

costs

Fixed Selling & Ad. Expenses       50,000                      50,000

Net Profit                                        250,000                   940,000