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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 ago
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