Question

This is all one question with several parts for my accounting homework. I've tried but I keep getting the wrong answer please help.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 if your formulas are correct, you should get the correct answers to the following questions. (a) What is the net operating income (loss) in Year 1 under absorption costing? (b) What is the net operating income (loss) in Year 2 under absorption costing? (c) What is the net operating income (loss) in Year 1 under variable costing? (d) What is the net operating income (loss) in Year 2 under variable costing? (e) The net operating income (loss) under absorption costing is less than the net operating income (loss) under variable costing in Year 2 because: Units were left over from the previous year. The cost of goods sold is always less under variable costing than under absorption costing. Sales exceeded production so some of the fixed manufacturing overhead of the period was released from inventories under absorption costing. 3. Make a note of the absorption costing net operating income (loss) in Year 2. At the end of Year 1, the company’s board of directors set a target for Year 2 of net operating income of $40,000 under absorption costing. If this target is met, a hefty bonus would be paid to the CEO of the company. Keeping everything else the same from part (2) above, change the units produced in Year 2 to 3,800 units. (a) Would this change result in a bonus being paid to the CEO? Yes No (b) What is the net operating income (loss) in Year 2 under absorption costing (c) Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,100 units per year? Yes No

Chapter 6: Applying Excel Data Selling price per unit $324 Manufacturing costs: Variable per unit produced: Direct materials $155 Direct labor $71 Variable manufacturing overhead $21 Fixed manufacturing overhead per year $95,000 Selling and administrative expenses: Variable per unit sold $9 Fixed per year $48,000 Year 1 Year 2 Units in beginning inventory 0 Units produced during the year 2,500 1,900 Units during the year 2,100 2,100

Answer 1

	Absorption Costing
	Year 1	Year 1	Year 2	Year 2
Units sold		2100		2100
Sales Price per unit		324		324
Sales Revenue		680,400.00		680,400.00
Less: Cost of Goods Sold
Direct Materials	2100 units @155	325500	2100 units @155	325500
Direct Labor	2100 units @ 71	149100	2100 units @ 71	149100
Manufacturing Overhead
Variable OH	2100 units @ 21	44100	2100 units @ 21	44100
Fixed OH
Year 1: per unit=$95000/2500= $38 Year 2: per unit= $95000/1900= $50	$38*2100	79800	400 units @ 38 1700 units @ 50	100200
		598500		618900
Gross Profit		81,900.00		61,500.00
Less: Non manufacturing Overhead
Variable	@Rs. 9	18900		18900
Fixed		48000		48000
Operating Loss		15,000.00		(5,400.00)
Notes: Non manufacturing overheads are period costs, expensed off in the same period
Fixed manufacturing overhead are product/inventoriable costs, they are allocated to the units produced as per the predetermined rate which is calculated as Budgeted FC/ Budgeted activity level
Closing Inventory in year 1 is production units less sales unit = 2500-2100= 400 units
	Variable Costing
	Year 1	Year 1	Year 2	Year 2
Units sold		2100		2100
Sales Price per unit		324		324
Sales Revenue		680,400.00		680,400.00
Less: Variable Costs
Direct Material	2100 units @155	325500	2100 units @155	325500
Direct Labour	2100 units @ 71	149100	2100 units @ 71	149100
Variable Manufacturing overhead	2100 units @ 21	44100	2100 units @ 21	44100
		518700		518700
Manufacturing Contribution Margin		161,700.00		161,700.00
Variable non Manufacturing Costs	@Rs. 9	18900		18900
Contribution Margin		142,800.00		142,800.00
Fixed Manufacturing Costs		95000		95000
Fixed non Manufacturing Costs		48000		48000
Operating Loss		(200.00)		(200.00)
If the units produced in year 2 is 3800, then the change in Fixed OH will be as follow:
	Absorption Costing
	Year 1	Year 1	Year 2	Year 2
Units sold		2100		2100
Sales Price per unit		324		324
Sales Revenue		680,400.00		680,400.00
Less: Cost of Goods Sold
Direct Materials	2100 units @155	325500	2100 units @155	325500
Direct Labor	2100 units @ 71	149100	2100 units @ 71	149100
Manufacturing Overhead
Variable OH	2100 units @ 21	44100	2100 units @ 21	44100
Fixed OH
Year 1: per unit=$95000/2500= $38 Year 2: per unit= $95000/3800= $25	$38*2100	79800	400 units @ 38 1700 units @ 25	57700
		598500		576400
Gross Profit		81,900.00		104,000.00
Less: Non manufacturing Overhead
Variable	@Rs. 9	18900		18900
Fixed		48000		48000
Operating Loss		15,000.00		37,100.00
(a) Would this change result in a bonus being paid to the CEO?
No
(b) What is the net operating income (loss) in Year 2 under absorption costing				$37,100
(c) Would this doubling of production in Year 2 be in the best interests of the company if sales are expected to continue to be 2,100 units per year?
No, because it the stock will not be sold, and it will be stocked occupying the space and increasing the carryinng cost to the company.