A company with fixed manufacturing costs of $500,000 produces 100,000 units in 2020 and 125,000 units...

A company with fixed manufacturing costs of $500,000 produces 100,000 units in 2020 and 125,000 units in 2021. The company sells 90,000 units each in both years. Other costs and selling price are unchanged for 2020 and 2021. Assume that there was no beginning inventory in 2020. Which of the following is true? Variable costing income will be greater in 2020 than in 2021. The dollar amount of ending inventory will be greater in 2020 than in 2021. Variable costing income will be the same in 2021 and 2020.

Solutions

Expert Solution

Answer :

Compmy has produced 100,000 units each in 2020 and 2021.The fixed costs per year are $500,000.

Under variable costing method, all the fixed costs are expended in the year in which they are incured. Whereas under full costing method, manufacturing fixd costs are treated as product costs and are charge.° income statement basing on the numbet of goods sold.

In simple words under vartable coning method, product Cost constitutes of only manufacturtng variable expenses where as ha total costing method product costs constitutes of manufactunag variable and fixed costs.

Under variable costing method. Al the fixed costs are expended in the year they are immured As the company sold same slumber ofunits at same price inoming same amount of costs ,Income under variable costing method remain same for both year.
Under total costing method, manufacturing fixed costs are treated as product costs.
Manufacnning cost per unit in 2020 is
$500,000÷100,000 =$5
Manufacturing con per unit in 2021 is
500,000÷125,000 =$4
Cost pet unit in 2020 wlll be more than cost per unit in 2021 by $1.

Hence the income in 2021 will be greater than of income in 2020 as cost per unit is less in 2021 when compared with 2020.

Hence correct option is Variable costing income will be the same in 2021 and 2020.

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

A company’s budgeted costs for 60,000 units are as follows: Fixed manufacturing costs $30,000 Variable manufacturing...

A company’s budgeted costs for 60,000 units are as follows: Fixed manufacturing costs $30,000 Variable manufacturing costs $15.00 per unit The company produced 50,000 units. How much is the flexible budget total manufacturing cost?

Units sold 1,180 Price $ 10 Sales $ 11,800 Variable manufacturing costs 4,720 Fixed manufacturing costs...

Units sold 1,180 Price $ 10 Sales $ 11,800 Variable manufacturing costs 4,720 Fixed manufacturing costs 2,360 Variable selling costs 1,180 Fixed administrative costs 1,180 Required: Using the data provided, compute the margin of safety and margin of safety ratio. mos: mos ratio:

a company has a $400,000 of fixed selling cost. $100,000 of fixed administrative costs and 300000....

a company has a $400,000 of fixed selling cost. $100,000 of fixed administrative costs and 300000. of fixed overhead. Their direct material costs are $20/unit. Labor costs are $10/hour and it takes 30 minutes to make on unit of product. Their selling commisssion are 10% of the selling price. the selling price is $80/ unit. 1-what is the dollar amount of total fixed costs? 2-What are the total variable costs PER UNIT? 3- Whats the contribution margin per unit? 4-Whats...

Appen Ltd. incurred fixed manufacturing costs of $25,000 during 2020. Other information for 2020 includes: ...

Appen Ltd. incurred fixed manufacturing costs of $25,000 during 2020. Other information for 2020 includes: The budgeted denominator level is 2,500 units. Units produced total 2,600 units. Units sold total 1,600 units. Variable cost per unit is $5 Beginning inventory is zero. The fixed manufacturing cost rate is based on the budgeted denominator level. There is no spending variance for fixed manufacturing cost. Under absorption costing, calculate the production-volume variance. Clearly label whether the variance...

assume a company incurs 100,000 for total variable costs and 150000 for total fixed costs to...

assume a company incurs 100,000 for total variable costs and 150000 for total fixed costs to produce 10000 units. what would the total cost be to produce 12000 units?

A company produces a product that currently costs $8 in variable costs and $2 in fixed...

A company produces a product that currently costs $8 in variable costs and $2 in fixed costs. It sells the product for $14. If processed further, the company will spend an additional $6 in variable costs and $2 in fixed costs. Each unit would then be sold for $24. Why would the company choose to process further?

A company produces a product that currently costs $8 in variable costs and $2 in fixed...

Fixed costs are assumed to be $500,000 per year. The company estimates the variable cost per...

Fixed costs are assumed to be $500,000 per year. The company estimates the variable cost per unit (v) to be $75 and expects to sell each unit for $425. There are no taxes and the required rate of return is 22% per year. Suppose that sales are currently estimated to be 5000 units per month. What is the degree of operating leverage? (Round to 1 decimal place, ie 2.3) Using your answer from above, estimate what the new monthly operating...

Each year, Burnt Company produces 500,000 units of a component used in vehicle stereos. An outside...

Each year, Burnt Company produces 500,000 units of a component used in vehicle stereos. An outside supplier has offered to supply the part for $1.28. The unit cost is: Direct Materials $0.76 Direct Labor 0.25 Variable Overhead 0.14 Fixed Overhead 2.33 Total Unit Cost $3.48 Part A What are the alternatives for Reinhardt Company? Part B Assume that none of the fixed cost is avoidable. List the relevant cost(s) of internal production and of external purchase. Part C Which alternative...

On January 1, 2020, Creative Accounting (CA) Company capitalized $500,000 of costs it incurred to internally...

On January 1, 2020, Creative Accounting (CA) Company capitalized $500,000 of costs it incurred to internally develop a patent. CA Company paid these costs in cash. It reported an amortization expense in the 2020 fiscal year for the patent. CA Company estimated the amortization expense for 2020 for the patent to be one tenth of the original cost. What is the effect of these journal entries on 2020 financial statements? Specifically, calculate the numerical impact on Net Income, Assets, Liabilities...

Subjects