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 $32 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 2020
Beginning inventory		0
Expected sales in units		60,000
Selling price per unit		$32
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		$4
Fixed selling and administrative expenses (total)		$50,000

(a)

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.

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.

Answer 1

Income Statement
For the year ended December 31,2020
Absorption Costing
	60000 produced	90000 produced
Sales	1920000	1920000
Cost of goods sold	1500000	1320000
Gross margin	420000	600000
Variable selling and administrative expenses	240000	240000
Fixed selling and administrative expenses	50000	50000
Net income / (loss)	130000	310000

Workings:
	60000 produced	90000 produced
Sales	=60000*32	=60000*32
Cost of goods sold	=60000*25	=60000*22
Variable selling and administrative expenses	=60000*4	=60000*4

answered by: anonymous