The offices and factory of Okanagan Company were destroyed by a flood on July 31, 2012, the year-end date of the company. Almost all of the accounting records were lost in the flood and the company did not have a backup copy. Luckily, there was no loss of inventory because all of the units were sold by July 31, 2012. The company was a single product manufacturing company that was planning to use variable costing for internal management decisions. The company’s accountant has found the following incomplete accounting records. His task is to reconstruct the 2012 income statement under both absorption and variable costing.
Sales ……………………………………………………………………..$900,000
Actual fixed manufacturing costs incurred ………………………………132,000
Actual variable manufacturing cost per unit for 2012 production………………6
Net income, absorption costing ………………………………………….120,000
……………………………………………………..360,000
Actual selling, general, and administrative expenses (all fixed) …………42,000
Gross margin …………………………………………………………….162,000
The company had no work-in-process inventories. There was no under- or over-applied fixed or variable overhead.
The full absorption cost per unit in finished goods inventory on August 1, 2011, was the same as the cost per unit for units produced during fiscal 2012. You have been asked by the accountant to assist him to prepare for a meeting with the company’s board of directors
REQUIRED
A. 1. Calculate how many units were sold between August 1, 2011, and July 31, 2012.
2. Calculate the unit production costs for the period August 1, 2011, to July 31, 2012.
3. Calculate how many units were produced between August 1, 2011, and July 31, 2012.
B. Prepare an absorption costing income statement for the year ended July 31, 2012. Assume that 90,000 units were sold and 60,000 units were produced.
C. Prepare a variable costing income statement for the year ended July 31, 2012. Assume that 90,000 units were sold and 60,000 units were produced.
D. Prepare a reconciliation of the net income under absorption costing with net income under variable costing.
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