Question

In: Accounting

During its first month of operations, Hanson Baking Company produced 7,000 cakes of which 6,400 were...

During its first month of operations, Hanson Baking Company produced 7,000 cakes of which 6,400 were sold. The following information was taken from the accounting records for the month of July, 2011:

July 20xx

Sales

$128,000

Manufacturing Costs

Direct Materials

$53,900

Direct Labor

25,900

Variable Manufacturing Overhead

14,000

Fixed Manufacturing Overhead

18,200

Selling and Administrative Expenses

Variable

$14,080

Fixed

6,400

During August, Hanson Baking Company produced 5,800 cakes of which 6,400 were sold. The following information was taken from the accounting records for the month August, 2011:

August 20xx

Sales

$128,000

Manufacturing Costs

Direct Materials

$44,660

Direct Labor

21,460

Variable Manufacturing Overhead

11,600

Fixed Manufacturing Overhead

18,200

Selling and Administrative Expenses

Variable

$14,080

Fixed

6,400

Required: - Complete the following using Excel

Prepare an income statement using both Absorption and Variable Costing for the months of May and June.

Compare the net income for May and June under Absorption Costing. Are the amounts different or the same? Explain

Compare the net income for May and June under Variable Costing. Are the amounts different or the same? Explain

Solutions

Expert Solution

Q1
Income statement-variable costing
May June
Sales $        128,000 $        128,000
Less: Variable Manufacturing Costs
Direct Materials $          53,900 $          44,660
Direct Labor $          25,900 $          21,460
Variable Manufacturing Overhead $          14,000 $          11,600
Selling   and Administrative Expenses-Variable $          14,080 $          14,080
Contribution $          20,120 $          36,200
Less: Fixed cost
Fixed Manufacturing Overhead $          18,200 $          18,200
Selling   and Administrative Expenses-Fixed $            6,400 $            6,400
Net income $          (4,480) $          11,600
Income statement-Absorption costing
May June
Sales $        128,000 $        128,000
Less: Manufacturing Costs
Direct Materials $          53,900 $          44,660
Direct Labor $          25,900 $          21,460
Variable Manufacturing Overhead $          14,000 $          11,600
Fixed Manufacturing Overhead $          16,640 $          19,760
Cost of goods sold $          17,560 $          30,520
Less: Selling and administrative
Fixed $            6,400 $            6,400
Variable $          14,080 $          14,080
Net income $          (2,920) $          10,040
Q2
Yes, It is different due to change in manufacturing cost and no. of cakes produced.
Q3
Yes, it is different due to change in manufacturing cost and no. of cakes produced.

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