Question
In: Accounting
Income Statements and Firm Performance: Variable and Absorption Costing Jellison Company had the following operating data...
Income Statements and Firm Performance: Variable and Absorption Costing
Jellison Company had the following operating data for its first two years of operations:
| Variable costs per unit: | |||
| Direct materials | 4.00 | ||
| Direct labor | $2.80 | ||
| Variable overhead | 1.50 | ||
| Fixed costs per year: | |||
| Overhead | 180,000 | ||
| Selling and administrative | 70,600 |
Jellison produced 90,000 units in the first year and sold 80,000. In the second year, it produced 80,000 units and sold 90,000 units. The selling price per unit each year was $12. Jellison uses an actual costing system for product costing.
Required:
1. Prepare income statements for both years using absorption costing. If an amount is zero, enter "0".
| Jellison Company | ||
| Absorption-Costing Income Statement | ||
| For Years 1 and 2 | ||
| Year 1 | Year 2 | |
| Sales | $fill in the blank a78332ffd05f079_2 | $fill in the blank a78332ffd05f079_3 |
| Less: Cost of goods sold | fill in the blank a78332ffd05f079_5 | fill in the blank a78332ffd05f079_6 |
| Gross profit | $fill in the blank a78332ffd05f079_7 | $fill in the blank a78332ffd05f079_8 |
| fill in the blank a78332ffd05f079_10 | fill in the blank a78332ffd05f079_11 | |
| Operating income | $fill in the blank a78332ffd05f079_12 | $fill in the blank a78332ffd05f079_13 |
| Cost of goods sold: | ||
| $fill in the blank a78332ffd05f079_15 | $fill in the blank a78332ffd05f079_16 | |
| fill in the blank a78332ffd05f079_18 | fill in the blank a78332ffd05f079_19 | |
| $fill in the blank a78332ffd05f079_21 | $fill in the blank a78332ffd05f079_22 | |
| fill in the blank a78332ffd05f079_24 | fill in the blank a78332ffd05f079_25 | |
| Cost of goods sold | $fill in the blank a78332ffd05f079_26 | $fill in the blank a78332ffd05f079_27 |
Has firm performance, as measured by income, improved or
declined from Year 1 to Year 2?
2. Prepare income statements for both years using variable costing. If an amount is zero, enter "0".
| Jellison Company | ||
| Variable-Costing Income Statement | ||
| For Years 1 and 2 | ||
| Year 1 | Year 2 | |
| $fill in the blank b5cb2cfbc071074_2 | $fill in the blank b5cb2cfbc071074_3 | |
| fill in the blank b5cb2cfbc071074_5 | fill in the blank b5cb2cfbc071074_6 | |
| Contribution margin | $fill in the blank b5cb2cfbc071074_7 | $fill in the blank b5cb2cfbc071074_8 |
| Less: | ||
| fill in the blank b5cb2cfbc071074_10 | fill in the blank b5cb2cfbc071074_11 | |
| fill in the blank b5cb2cfbc071074_13 | fill in the blank b5cb2cfbc071074_14 | |
| Operating income | $fill in the blank b5cb2cfbc071074_15 | $fill in the blank b5cb2cfbc071074_16 |
| Variable cost of goods sold: | ||
| $fill in the blank b5cb2cfbc071074_18 | $fill in the blank b5cb2cfbc071074_19 | |
| fill in the blank b5cb2cfbc071074_21 | fill in the blank b5cb2cfbc071074_22 | |
| $fill in the blank b5cb2cfbc071074_24 | $fill in the blank b5cb2cfbc071074_25 | |
| fill in the blank b5cb2cfbc071074_27 | fill in the blank b5cb2cfbc071074_28 | |
| Cost of goods sold | $fill in the blank b5cb2cfbc071074_29 | $fill in the blank b5cb2cfbc071074_30 |
Has firm performance, as measured by income, improved or
declined from Year 1 to Year 2?
3. Which method do you think most accurately
measures firm performance?
Solutions
Expert Solution
| Absorption Costing Income Statement | Year 1 | Year 2 | ||
| Sales | 960000 | 1080000 | ||
| Beginning Invenotry | 0 | 103000 | ||
| Add: Cost of goods manufactured | 927000 | 844000 | ||
| Goods available for sale | 927000 | 947000 | ||
| Less: Ending Inventory | 103000 | |||
| Cost of goods sold | 824000 | 947000 | ||
| Gross Profit | 136000 | 133000 | ||
| Selling and administrative cost | 70600 | 70600 | ||
| Net operating income | 65400 | 62400 |
| Variable costing Income Statement | Year 1 | Year 2 | ||
| Sales | 960000 | 1080000 | ||
| Less: Variable Expenses | ||||
| Beginning Invenotry | 0 | 83000 | ||
| Add: Cost of goods manufactured | 747000 | 664000 | ||
| Goods available for sale | 747000 | 747000 | ||
| Less: Ending Inventory | 83000 | 664000 | 0 | 747000 |
| Variable cost of goods sold | 296000 | 333000 | ||
| Variable selling and administrative cost | 0 | 0 | ||
| Contribution Margin | 296000 | 333000 | ||
| Less: Fixed Expenses | ||||
| Manufacturing Overhead | 180000 | 180000 | ||
| Selling and administrative | 70600 | 250600 | 70600 | 250600 |
| Net operating income | 45400 | 82400 |
| Reconcilation | Year 1 | Year 2 | ||
| Net income (Variable costing) | 45400 | Net income (variable costing) | 82400 | |
| Add: Fixed Manufacturing OH Deffered | 20000 | Less:Fixed manufacturing OH released in | 20000 | |
| in Closing Inventories | Opening Inventories | |||
| Net income (absorption costing) | 65400 | Net income (absorption costing) | 62400 |
Absorption costing measures firm performance well as it excludes fixed manufacturing overhead portion in closing stock.
ekkarill92 answered 1 year agoRelated Solutions
Income Statements and Firm Performance: Variable and Absorption Costing Jellison Company had the following operating data...
Income Statements and Firm Performance: Variable and Absorption
Costing
Jellison Company had the following operating data for its first
two years of operations:
Variable costs per unit:
Direct materials
4.00
Direct labor
$2.80
Variable overhead
1.40
Fixed costs per year:
Overhead
180,000
Selling and administrative
70,200
Jellison produced 90,000 units in the first
year and sold 80,000. In the second year, it produced 80,000 units
and sold 90,000 units. The selling price per unit each year was
$12. Jellison uses...
Income Statements and Firm Performance: Variable and Absorption Costing Jellison Company had the following operating data...
Income Statements and Firm Performance: Variable and Absorption
Costing
Jellison Company had the following operating data for its first
two years of operations:
Variable costs per unit:
Direct materials
4.00
Direct labor
$2.80
Variable overhead
1.40
Fixed costs per year:
Overhead
180,000
Selling and administrative
70,500
Jellison produced 90,000 units in the first
year and sold 80,000. In the second year, it produced 80,000 units
and sold 90,000 units. The selling price per unit each year was
$12. Jellison uses...
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Variable Costing: Compare and contrast variable costing with
absorption costing, highlighting the differences between operating
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a manufacturing company and a service company.
Discuss and compare absorption costing income statements with variable costing income statements. In your discussion, address...
Discuss and compare absorption costing income statements
with variable costing income statements. In your discussion,
address the following questions: 10
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b. Under what circumstances will the operating income under each
method be the same?
c. What situation will cause the absorption costing income to be
higher than the variable costing income?
d. What situation will cause the absorption costing income to be
lower than the variable costing income?
e....
2.When does absorption costing net operating income and variable costing net operating income require reconciliation? Explain...
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Operating income is one of the most important items reported by
a company. Depending on the decision-making needs of management,
operating income can be determined using absorption costing or
variable costing.
Select whether the following characteristics are most often
associated with absorption costing or variable costing.
Required under generally accepted accounting principles
(GAAP)
Often used for internal use in decision making
Cost of goods manufactured includes only variable manufacturing
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Mastery Problem: Variable Costing for Management Analysis Absorption vs. Variable Operating income is one of the...
Mastery Problem: Variable Costing for Management
Analysis
Absorption vs. Variable
Operating income is one of the most important items reported by
a company. Depending on the decision-making needs of management,
operating income can be determined using absorption costing or
variable costing.
Select whether the following characteristics are most often
associated with absorption costing or variable costing.
Required under generally accepted accounting principles
(GAAP)
Absorption Costing
Often used for internal use in decision making
Variable Costing
Cost of goods manufactured includes...
Mastery Problem: Variable Costing for Management Analysis Absorption vs. Variable Operating income is one of the...
Mastery Problem: Variable Costing for Management
Analysis
Absorption vs. Variable
Operating income is one of the most important items reported by
a company. Depending on the decision-making needs of management,
operating income can be determined using absorption costing or
variable costing.
Select whether the following characteristics are most often
associated with absorption costing or variable costing.
Required under generally accepted accounting principles
(GAAP)
Often used for internal use in decision making
Cost of goods manufactured includes only variable manufacturing
costs...
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Beginning inventory, units
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Units produced
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Units sold
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Variable costs per unit:
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Direct labor
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Variable overhead
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Variable selling expenses
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Fixed selling and administrative expenses
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There are no work-in-process inventories. Normal activity is
100,000 units. Expected and actual overhead costs are the same.
Costs have not changed from one...
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