Question

Huntington Manufacturing manufactures a single product that it will sell for $83 per unit. The company is looking to project its operating income for its first two years of operations. Cost information for the single unit of its product is as follows:

direct material per unit produced	$33
Direct labor cost per unit produced	$13
Variable manufacturing overhead (MOH) per unit produced	$7
Variable operating expenses per unit sold	$3

Fixed manufacturing overhead (MOH) for each year is $294,000, while fixed operating expenses for each year will be $82,000.

During its first year of operations, the company plans to manufacture 21,000 units and anticipates selling 14,000 of those units. During the second year of its operations, the company plans to manufacture 21,000 units and anticipates selling 25,000 units (it has units in beginning inventory for the second year from its first year of operations).

1. Prepare an absorption costing income statement for:
a.Huntington 's first year of operations
b.Huntington 's second year of operations

Huntington Manufacturing Income Statement (Absorption Costing)

	(a) year 1	(b) year 2
less:
less:

2. Before you prepare the variable costing income statements for Huntington, predict the company's operating income using variable costing for both its first year and its second year without preparing the variable costing income statements. Hint: Calculate the variable costing operating income for a given year by taking that year's absorption costing operating income an adding or subtracting the difference in operating income as calculated using the following formula:
Difference in operating income = (Change in inventory level in units x Fixed MOH per unit)

Begin by calculating the difference in income each year using the formula provided.

	Change in Inventory		Fixed MOH		Difference In
year	level in units	x	per unit	=	operating income
1		x		=
2		x		=

Now predict Huntington 's operating income under variable costing for both its first year and its second year of operations.

	operating income
year	under variable costing
1
2

3. Prepare a variable costing income statement for:
a. Huntington's first year of operations
b. Huntington's second year of operations

Huntington Manufacturing Contribution Margin Income Statement (Variable Costing)

	(a) year 1	(b) year 2
less:
less:

Answer 1

Rreq a:
The Absorption Costing Unit Product Cost
				Year 1	Year 2
Direct Material				33	33
Direct labour				13	13
Variable Manufacturing overheads				7	7
Fixed Manufacturing overheads				14.00	14.00
Absorption costing unit prroduct cost				67.00	67.00
The Absorption Costing Income Statement Under FIFO
				Year 1	Year 2
Sales				$1,162,000	$2,075,000
Cost of Goods sold				938000	1675000
Gross Margin				$224,000	$400,000
Selling and distribution expense				124,000	157,000
Net operating income				100,000	243,000
Req b:
		Change in Inventory		Fixed MOH		Difference in Income
YEar1		7000		14		98000
Year2		-4000		14		-56000
Req c:
		Operating income
		Under variable
Year 1		100,000-98000 =2,000
Year 2		243,000+56000 =299,000
Req d:
The Variable Costing Income Statement under FIFO
				YEAR 1		YEAR 2
Sales					1,162,000		2,075,000
Less: Variable cost
variable cost of goods sold				742,000		1,325,000
Variable selling expense				42,000	784,000	75,000	1,400,000
Contribution margin					378,000		675,000
Fixed expense:
Fixed Manufacturing overheads					294,000		294,000
Fixed selling expense					82,000		82,000
Net operating Income					2,000		299,000