Question

Santana Rey expects sales of Business Solutions’s line of computer workstation furniture to equal 300 workstations (at a sales price of $3,200 each) for 2019. The workstations’ manufacturing costs include the following.

Direct materials	$	720		per unit
Direct labor	$	360		per unit
Variable overhead	$	70		per unit
Fixed overhead	$	24,000		per year

The selling expenses related to these workstations follow.

Variable selling expenses	$	45	per unit
Fixed selling expenses	$	3,400	per year

Santana is considering how many workstations to produce in 2019. She is confident that she will be able to sell any workstations in her 2019 ending inventory during 2020. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations.

Required:
1. Complete the following income statements using absorption costing.
2. Complete the following income statements using variable costing.

Answer 1

Working Notes: 1
	Calculation of Fixed overhead recovery rate per unit
	Fixed Manufacturing Cost =	$                     24,000
	Divide By	"/" By
	No. of Units Manufactured	300
	Recovery Rate Per Units =	$                       80.00
Working Notes : 2
CALCUALTION OF cost of production units by using absorption and variable Costing
	Particulars	Absorption Costing Amount	Variable Costing Amount
	Direct Material	$                           720	$                   720
	Direct Labor	$                           360	$                   360
	Variable Overhead	$                             70	$                      70
	Fixed Manufacturing cost	$                             80	$                       -
	Total	$                       1,230	$                1,150
SOLUTION: 1
	ABOSRPTION COSTING INCOME STATEMENTS	Absorption Costing
	Particulars	Amount
	Sales (300 X $ 3,200)	$                 9,60,000
	Cost of Goods Sold
	Beginning inventory	$                              -
	Cost of Goods Manufactured (300 Untis X $ 1230)	$                 3,69,000
	Less: Ending Inventory	$                              -
	Cost of Goods Sold	$                 3,69,000
	Gross Profit	$                 5,91,000
	Less : Selling Expenses
	Fixed general and administrative expenses	$                       3,400
	Variable Selling Expenses (300 X $ 45)	$                     13,500
	Net Income	$                 5,74,100
	SOLUTION 2)
	VARIABLE COSTING INCOME STATEMENTS	Variable Costing
	Particulars	Amount
	Sales (300 X $ 3,200)	$                 9,60,000
	Cost of Goods Sold
	Beginning inventory	$                              -
	Cost of Goods Manufactured (300 Untis X $ 1150)	$                 3,45,000
	Less: Ending Inventory	$                              -
	Cost of Goods Sold	$                 3,45,000
	Variable Selling Expenses (300 X $ 45)	$                     13,500
	Gross Profit	$                 6,01,500
	Less: Fixed Manufacturing overhead	$                     24,000
	Less : Fixed Selling Expenses	$                       3,400
	Net Income	$                 5,74,100