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 $35 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 $35

Variable manufacturing costs per unit $15

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 $24 per unit ($15 variable + $9 fixed)   

Based on 90,000 units $21 per unit ($15 variable + $6 fixed)

Variable selling and administrative expenses $5

Fixed selling and administrative expenses (total) $50,000

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.

60,000 produce

90,000 Produce

Cost of Goods sold:Sales:

Gross Profit:

Variable Selling and adminitrative

Fixed Selling and Adminitrative

Net Income

Answer 1

		Absorption costing income statement
				60,000	90,000
				produced	produced
sales				2,100,000	2,100,000
cost of goods sold				1,440,000	1,260,000
Gross profit				660,000	840,000
Variable Selling and Admin expense				300,000	300,000
Fixed selling and admin expense				50,000	50,000
Net income(loss)				310,000	490,000
Working notes
cost of goods sold				60,000*24	60,000*21
Variable selling and admin expense				60,000*5 in both cases
		Variable costing income statement
				60,000	90,000
				produced	produced
sales				2,100,000	2,100,000
less variable cost of goods sold				900,000	900,000
Variable selling and admin expense				300,000	300,000
Contribution margin				900,000	900,000
Fixed manufacturing overhead cost				540,000	540,000
fixed selling and admin expense				50,000	50,000
Net income				310,000	310,000
Working notes
Variable cost of goods sold				60,000*15	60,000*15
Variable selling and admin expense				60,000*5 in both cases

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