Rod’s Prods manufactures cattle prods. The market has been declining in recent years and Rod’s has...

Rod’s Prods manufactures cattle prods. The market has been declining in recent years and Rod’s has been forced to drop its price slightly although production costs have remained the same. Operating information for the last two years is given below:

	2013	2014
UNIT SALES	50,000	48,000
UNIT SELLING PRICE	$15.00	$14.00
# UNITS PRODUCED (= BUDGETED)	50,000	80,000
VARIABLE MANUFACTURING COST	$10.00/UNIT	$10.00/UNIT
FIXED MANUFACTURING COST	$175,000	$175,000

Budgeted and actual production was the same in both years, budgeted production and sales were the same in 2013, and in 2012, but not in 2014 when budgeted production rose to 80,000 units.

Rod, the president of Rod’s Prods was delighted to see the income statement for 2014, which shows an increase over 2013. The income statements seen by Rod were prepared using absorption costing.

Prepare the income statements for both years using absorption costing. Prepare the income statements for both years using variable costing. Explain the difference between the two costing methods and which method is a more accurate reflection of the financial situation of the company.

Expert Solution

ekkarill92 answered 1 year ago

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