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problem: James Tyler started a small manufacturing firm, JT Enterprises, at the starting of 2005. James has prepared following income statement for the first quarter of operations.

JT Enterprises

Income Statement For the Quarter Ended March 31, 2005

 

 

Sales revenue (25,000 units)  

 

$1,200,000

Less variable costs:

 

 

Variable cost of goods sold

$540,000

 

Variable selling and administrative expenses              

260,000

800,000

Contribution margin

_____________

_____________

Less fixed costs: 

 

$400,000

 Fixed manufacturing overhead

$300,000

 

   Fixed selling and administrative expenses 

150,000

450,000

 

_____________

_____________

Net loss

 

($50,000)

 

 

___________

 

 

___________

Variable cost of goods sold includes direct materials, direct labor, & variable manufacturing overhead. The firm starts the quarter with no inventory; it manufactured 30,000 units over the period. Variable selling & administrative expenses are based on units sold.

Required

[A] Compute unit product cost using absorption costing.

[B] Use absorption costing to rework the income statement.

[C] Does the loss figure change using absorption costing?  If yes, describe your reasoning.

[D] During the 2nd quarter of operations, JT again manufactured 30,000 units but sold 35,000 units. Make income statements for the second quarter using both the variable-and absorption-costing methods.

[E] Describe the difference in net income (or loss) in the 2nd quarter between the two statements prepared in requirement (D).

Cost Accounting, Accounting

  • Category:- Cost Accounting
  • Reference No.:- M922444

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