Question

Security Technology Inc. (STI) is a manufacturer of an electronic control system used in the manufacture of certain special-duty auto transmissions used primarily for police and military applications. The part sells for $44 per unit and had sales of 24,750 units in the current year, 2015. STI has no inventory on hand at the beginning of 2015 and is projecting sales of 28,250 units in 2016. STI is planning the same production level for 2016 as in 2015, 26,500 units. The variable manufacturing costs for STI are $15 and the variable selling costs are only $0.60 per unit. The fixed manufacturing costs are $238,500 per year and the fixed selling costs are $650 per year.

Required:

1. Prepare an income statement for each year using full costing. (Round your final answers to nearest whole dollar amount.)

2. Prepare an income statement for each year using variable costing. (Round your final answers to nearest whole dollar amount.)

3. Prepare a reconciliation and explanation of the difference each year in the operating income resulting from the full- and variable-costing methods. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your "Fixed overhead rate" answers to 2 decimal places, and other final answers to nearest whole dollar amount.)

Answer 1

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