Question

Santana Rey expects sales of Business Solutions’s line of computer workstation furniture to equal 300 workstations (at a sales price of $4,000 each) for 2019. The workstations’ manufacturing costs include the following. Direct materials $ 710 per unit Direct labor $ 310 per unit Variable overhead $ 80 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 $ 3,200 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.

Complete the following income statements using absorption costing.

Production volume Cost of goods sold: 300 workstations 320 workstations Cost of goods sold per unit Number of workstations sold Total cost of goods sold BUSINESS SOLUTIONS Absorption Costing Income Statements Production volume Sales volume - 300 Workstations 300 workstations 320 workstations Under absorption costing, can the difference between production volume and sales volume affect the reported net income (loss)?

• omplete the following income statements using variable costing.

  	BUSINESS SOLUTIONS Variable Costing Income Statements Production volume (units) 300 workstations 320 workstations Sales volume (units) Net income (loss) Under variable costing, can a company increase its net income by increasing production?

Answer 1

Answer a.

Yes, the difference between production volume and sales volume affect the reported net income (loss) under the absorption costing method.

Answer b.

No, a company cannot increase its net income by increasing production.