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Chapter 21: Q-21-8RQ (page 1167)
Explain how increasing production can increase gross profit when using absorption costing.
Answer
Gross profit can be increased by reducing fixed manufacturing overhead per unit.
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Question: Preparing variable costing income statements, production less than sales
Refer to your answers to Exercise E21-16. In May 2018, ReVitalAde produced 22,000 cases of powdered drink mix and sold 23,000 cases, of which 1,000 were produced in April. The sales price was \(29, variable costs were \)12 per case (\(9 manufacturing and \)3 selling and administrative), and total fixed costs were \(100,000 (\)91,000 manufacturing and $9,000 selling and administrative).
Requirements
Analyzing profitability analysis, service company Burlington Internet Services is an Internet service provider for commercial and residential customers. The company provided the following data for its two types of customers for the month of August:
For each type of customer, determine both the contribution margin per customer and the contribution margin ratio. Round to two decimal places.
Which type of service is more profitable?
Question:What is a business segment? Give some examples.
Using variable and absorption costing, making decisions The 2018 data that follow pertain to Eli鈥檚 Electric Eyewear, a manufacturer of swimming goggles. (Eli鈥檚 Electric Eyewear had no beginning Finished Goods Inventory in January 2018.)
Number of goggles produced 245,000 Number of goggles sold 215,000 Sales price per unit \( 22Variable manufacturing cost per unit 8Sales commission cost per unit 5Fixed manufacturing overhead 1,470,000 Fixed selling and administrative costs 250,000 Requirements
1. Prepare both conventional (absorption costing) and contribution margin (variable costing) income statements for Eli鈥檚 Electric Eyewear for the year ended December 31, 2018.
2. Which statement shows the higher operating income? Why?
3. Eli鈥檚 ElectricEyewear鈥檚 marketing vice president believes a new sales promotion that costs \)60,000 would increase sales to 220,000 goggles. Should the company go ahead with the promotion? Give your reasoning.
Hayden Company has 50 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hayden produced 150 units and sold 200 units for \(150 each. All units incurred \)80 in variable manufacturing costs and \(20 in fixed manufacturing costs. Hayden also incurred \)7,500 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.
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