Scribd Logo
Upload

Welcome to Scribd!

  • 22 views

    Exercises Variable Costing

    Uploaded by

    Gerwin Golingay
    (1) Craig Company is a family-owned business where the document's author owns 20% of shares. The company hired a new president, Ajay Pinder, with a base salary of $140,000 plus 10% of income over $670,000. (2) For 2016, sales are estimated at 44,000 units at $106 per unit. Pinder decided to manufacture 55,000 units instead of the estimated 44,000 to maximize capacity. Manufacturing costs and expenses are provided for producing 44,000 and 55,000 units. (3) The document requests preparing income statements for 44,000 and 55,000 units manufactured with 44,000 units sold, and explaining the difference

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Exercises Variable Costing

    Uploaded by

    Gerwin Golingay
    22 views2 pages
    (1) Craig Company is a family-owned business where the document's author owns 20% of shares. The company hired a new president, Ajay Pinder, with a base salary of $140,000 plus 10% of income over $670,000. (2) For 2016, sales are estimated at 44,000 units at $106 per unit. Pinder decided to manufacture 55,000 units instead of the estimated 44,000 to maximize capacity. Manufacturing costs and expenses are provided for producing 44,000 and 55,000 units. (3) The document requests preparing income statements for 44,000 and 55,000 units manufactured with 44,000 units sold, and explaining the difference

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    (1) Craig Company is a family-owned business where the document's author owns 20% of shares. The company hired a new president, Ajay Pinder, with a base salary of $140,000 plus 10% of income over $670,000. (2) For 2016, sales are estimated at 44,000 units at $106 per unit. Pinder decided to manufacture 55,000 units instead of the estimated 44,000 to maximize capacity. Manufacturing costs and expenses are provided for producing 44,000 and 55,000 units. (3) The document requests preparing income statements for 44,000 and 55,000 units manufactured with 44,000 units sold, and explaining the difference

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    22 views2 pages

    Exercises Variable Costing

    Uploaded by

    Gerwin Golingay
    (1) Craig Company is a family-owned business where the document's author owns 20% of shares. The company hired a new president, Ajay Pinder, with a base salary of $140,000 plus 10% of income over $670,000. (2) For 2016, sales are estimated at 44,000 units at $106 per unit. Pinder decided to manufacture 55,000 units instead of the estimated 44,000 to maximize capacity. Manufacturing costs and expenses are provided for producing 44,000 and 55,000 units. (3) The document requests preparing income statements for 44,000 and 55,000 units manufactured with 44,000 units sold, and explaining the difference

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    Problem 1

    Craig Company is a family-owned business in which you own 20% of the common stock and your brothers
    and sisters own the remaining shares. The employment contract of Craig’s new president, Ajay Pinder,
    stipulates a base salary of $140,000 per year plus 10% of income from operations in excess of $670,000.
    Craig uses the absorption costing method of reporting income from operations, which has averaged
    approximately $670,000 for the past several years.

    Sales for 2016, Pinder’s first year as president of Craig Compay, are estimated at 44,000 units at a selling
    price of $106 per unit. To maximize the use of Craig’s productive capacity, Pinder has decided to
    manufacture 55,000 units, rather than the 44,000 units of estimated sales. The beginning inventory at
    January 1, 2016, is insignificant in amount, and the manufacturing costs and selling and administrative
    epxenses for the production of 44,000 and 55,000 units are as follows:

    44,000 Units to be Manufactured


    No. of Units Unit Cost Total Cost
    Manufacturing costs:
    Variable 44,000 $ 50.00 $ 2,200,000
    Fixed 44,000 11.00 $ 484,000
    Total $ 61.00 $ 2,684,000
    Selling & Administrative Expenses:
    Variable $ 1,050,000
    Fixed 330,000
    Total $ 1,380,000

    55,000 Units to be Manufactured


    No. of Units Unit Cost Total Cost
    Manufacturing costs:
    Variable 55,000 $ 50.00 $ 2,750,000
    Fixed 55,000 8.80 $ 484,000
    Total $ 58.80 $ 3,234,000
    Selling & Administrative Expenses:
    Variable $ 1,050,000
    Fixed 330,000
    Total $ 1,380,000

    Required:

    1. Prepare the absorption costing income statement for the year ending December 31, 2016, based on
    sales of 44,000 units and the manufacture of 44,000 units.
    2. Prepare the absorption costing income statement for the year ending December 31, 2016, based on
    sales of 44,000 units and the manufacture of 55,000 units.
    3. Explain the difference in the income from operations reported in #1 and #2.
    4. Compute Pinder’s total salary for the year 2016, based on your answers in #1 and #2.
    5. In addition to maximizing the use of Craig Company’s productive capacity, why might Pinder wish to
    manufacture 55,000 units rather that 44,000 units?
    Problem 2

    You might also like