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 $32 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		$32
Variable manufacturing costs per unit		$16
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		$25	per unit ($16 variable + $9 fixed)
Based on 90,000 units		$22	per unit ($16 variable + $6 fixed)
Variable selling and administrative expenses		$4
Fixed selling and administrative expenses (total)		$50,000

(a)

Correct answer iconYour answer is correct.

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.

DILITHIUM BATTERIES DIVISION Income Statement                                                                       For the Quarter Ended December 31, 2020For the Year Ended December 31, 2020December 31, 2020 Absorption Costing
		60,000 Produced		90,000 Produced
Inventory, January 1Contribution MarginFixed Manufacturing OverheadNet Income/(Loss)Variable Selling and Administrative ExpensesInventory, December 31Cost of Goods SoldCosts of Goods Available for SaleCosts of Goods ManufacturedVariable Cost of Goods SoldSalesGross ProfitVariable Costs of Goods ManufacturedVariable Costs of Goods Available for SaleFixed Selling and Administrative Expenses		$		$
Variable Cost of Goods SoldFixed Selling and Administrative ExpensesGross ProfitCost of Goods SoldContribution MarginVariable Selling and Administrative ExpensesVariable Costs of Goods Available for SaleSalesNet Income/(Loss)Inventory, December 31Inventory, January 1Fixed Manufacturing OverheadCosts of Goods Available for SaleCosts of Goods ManufacturedVariable Costs of Goods Manufactured
Costs of Goods Available for SaleContribution MarginVariable Selling and Administrative ExpensesFixed Manufacturing OverheadFixed Selling and Administrative ExpensesSalesVariable Costs of Goods ManufacturedInventory, January 1Inventory, December 31Costs of Goods ManufacturedVariable Cost of Goods SoldNet Income/(Loss)Cost of Goods SoldVariable Costs of Goods Available for SaleGross Profit
Net Income/(Loss)Fixed Selling and Administrative ExpensesGross ProfitFixed Manufacturing OverheadInventory, December 31SalesVariable Selling and Administrative ExpensesVariable Costs of Goods ManufacturedInventory, January 1Cost of Goods SoldCosts of Goods Available for SaleContribution MarginVariable Costs of Goods Available for SaleVariable Cost of Goods SoldCosts of Goods Manufactured
Costs of Goods ManufacturedVariable Costs of Goods ManufacturedFixed Manufacturing OverheadVariable Selling and Administrative ExpensesVariable Costs of Goods Available for SaleGross ProfitSalesCosts of Goods Available for SaleContribution MarginNet Income/(Loss)Inventory, January 1Fixed Selling and Administrative ExpensesVariable Cost of Goods SoldCost of Goods SoldInventory, December 31
Gross ProfitFixed Selling and Administrative ExpensesSalesNet Income/(Loss)Inventory, January 1Variable Cost of Goods SoldInventory, December 31Costs of Goods ManufacturedCost of Goods SoldContribution MarginVariable Costs of Goods ManufacturedVariable Selling and Administrative ExpensesVariable Costs of Goods Available for SaleFixed Manufacturing OverheadCosts of Goods Available for Sale		$		$

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(b)

New attempt is in progress. Some of the new entries may impact the last attempt grading.Your answer is partially correct.

Prepare a variable 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.

Answer 1

(a)

Absorption Costing Income Statement
For the Year Ended December 31, 2020
	60,000 Units Manufactured	90,000 Units Manufactured
Sales	$   1,920,000	$     1,920,000
Cost of goods sold:
Cost of goods manufactured	$   1,500,000	$     1,980,000
Inventory, October 31	$              -	$      (660,000)
Total cost of goods sold	$   1,500,000	$     1,320,000
Gross profit	$      420,000	$       600,000
Selling and administrative expenses	$      290,000	$       290,000
Operating income	$      130,000	$       310,000

(b)

Variable Costing Income Statement
For the Year Ended December 31, 2020
	60,000 Units Manufactured	90,000 Units Manufactured
Sales	$   1,920,000	$     1,920,000
Variable cost of goods sold:
Variable cost of goods manufactured	$      960,000	$     1,440,000
Inventory, October 31	$              -	$      (480,000)
Total variable cost of goods sold	$      960,000	$       960,000
Manufacturing margin	$      960,000	$       960,000
Variable selling and administrative expenses	$      240,000	$       240,000
Contribution margin	$      720,000	$       720,000
Fixed costs:
Fixed factory overhead	$      540,000	$       540,000
Fixed selling and administrative expenses	$        50,000	$         50,000
Total fixed costs	$      590,000	$       590,000
Operating income	$      130,000	$       130,000