Question

	Problem 2																					Input values
	Solve the given problem based on the following information.
																						Company name				Conglomco
	Scenario Table 1
	Conglomco Income Statement Under Absorption Costing																					Conglomco Income Statement Under Absorption Costing
							2011 ($)			2012 ($)																				2011 ($)		2012 ($)
	Sales ($45 per unit)							900,000			1,800,000											Sales ($45 per unit)								900,000		1,800,000
	Cost of goods sold ($31 per unit)							620,000			1,240,000											Cost of goods sold ($31 per unit)								620,000		1,240,000
	Gross margin							280,000			560,000											Gross margin								280,000		560,000
	Selling and administrative expenses							290,000			340,000											Selling and administrative expenses								290,000		340,000
	Net income/loss							(10,000)			220,000											Net income/loss								(10,000)		220,000
	Scenario Table 2																					Selling price						$45		per unit
	Units Produced and Sold																					COGS						$31		per unit
				2011			2012															Variable selling and administrative cost						$2.50		per unit
	Units produced				30,000			30,000
	Units sold				20,000			40,000
																						Units Produced and Sold
	·	During 2011 and 2012, the variable cost per unit stayed the same.																							2011	2012
	·	During 2011 and 2012, the total fixed costs stayed the same.																				Units produced			30,000	30,000		TRUE
																						Units sold			20,000	40,000
	Scenario Table 3
	Per Unit Product Cost
	Direct materials							$5
	Direct labor							$9
	Variable overhead							$7														Fixed overhead						$300,000
	Fixed overhead ($300,000 / 30,000 units)							$10
	Total product cost per unit							$31
																						Per Unit Product Cost
	Scenario Table 4																					Direct materials								$5
	Sales and Administrative Expense																					Direct labor								$9
										2011 ($)			2012 ($)									Variable overhead								$7
	Variable selling and administrative ($2.50 per unit)										50,000			100,000								Fixed overhead ($300,000 / 30,000 units)								$10
	Fixed selling and administrative										240,000			240,000								Total product cost per unit								$31
	Total selling and administrative										290,000			340,000
	Reconcile the variable costing income to the absorption costing income for these two years.
																						Sales and Administrative Expense
																														2011 ($)		2012 ($)
	Reconciliation of Variable Costing Income to Absorption Costing Income																					Variable selling and administrative ($2.50 per unit)								50,000		100,000
										2011 ($)			2012 ($)									Fixed selling and administrative								240,000		240,000
	Variable costing income									?				?								Total selling and administrative								290,000		340,000
	Fixed overhead in ending inventory									?			?
	Fixed overhead in beginning inventory									?			?
	Absorption costing income									?			?

Answer 1

Preparation of Variable costing Income statement for 2011 and 2012
	2011	2012
Sales	$900,000	$1,800,000
Less : Variable Production costs ($21 per unit)	$420,000	$840,000
Less : Variable selling and admin costs	$50,000	$100,000
Contribution Margin	$430,000	$860,000
Less : Fixed Manufacturing overheads	$300,000	$300,000
Less : Fixed selling & admin costs	$240,000	$240,000
Net Income	-$110,000	$320,000
Reconciliation of Variable Costing Income to Absorption Costing Income
Variable costing Income	-$110,000	$320,000
Add : Fixed Overhead in ending Inventory	$100,000	$0
Less : Fixed Overhead in beginning Inventory	$0	$100,000
Absorption costing income	-$10,000	$220,000