Please complete in Excel. Problem 5-17 Variable and Absorp

Please complete in Excel. Problem 5-17 Variable and Absorption Costing Unit ProductCosts and Income Statement Nickelson Company manufactures and sells one product. Thefollowing information pertains to each of the companys first three years ofoperations. Variable costs per unit: Manufacturing $25 Direct Labor $16 Variable manufacturing overhead $5 Variable selling and administrative $2 Fixed Cost per Year: Fixed manufacturing overhead $300000 Fixed selling and administrative expenses $180000 During the first year of operations Nickelson produced60000 units and sold 60000 units. During its second year of operations itproduced 75000 units and sold 50000 units. In its third year Nickelsonproduced 40000 units and sold 65000 units. The selling price of the companysproduct is $56 per unit. Required: 1.Compute the companys break-even point in unitssold. 2.Assume the company uses variable costing: a.Compute the unit product cost per year 1 2 and3. b.Prepare an income statement for year 1 2 and3. 3.Assume the company uses absorption costing: a.Compute the unit product cost for year 1 2 and3. b.Prepare an income statement for year 1 2 and3. 4.Compare the net operating income figures thatyou computed in requirements 2 and 3 to the break-even point that you computedin requirement 1. Which net operating income figures seem counterintuitive?Why? Problem 5-21 Prepare and Reconcile Variable CostingStatements Linden Company manufactures and sells a single product. Costdata for the product follows: Variable Cost Per Unit: Direct materials $6 Direct Labor 12 Variable factory overhead 4 Variable selling and administrative 3 Total variable costs per unit $25 Fixed costs per month: Fixed manufacturing overhead $240000 Fixed selling and administrative 180000 Total fixed cost per month $420000 The product sells for $40 per unit. Production and salesdata for May and June the first two months of operations are as follows: UnitsUnits ProducedSold May30000 26000 June3000034000 Income Statements prepared by the accounting departmentusing absorption costing are presented below: MayJune Sales $1040000 $1360000 Cost of goods sold$ 780000 1020000 Gross margin260000340000 Selling and administrative expenses258000 282000 Net Operating income2000$58000 Required: 1.Determine the unit product cost under: a.Absorption costing. b.Variable costing. 2.Prepare a contribution format variable costingincome statements for May and June. 3.Reconcile the variable costing and absorptioncosting net operating incomes. 4.The companys Accounting Department hasdetermined the break-even point to be 28000 units per month computed asfollows: Fixed cost per month = $420000 = 28000 units Unit contribution margin $15 per unit Upon receiving this figure the president commentedTheres something peculiar here. The controller says that the break-even pointis 28000 units per month. Yet we sold only 26000 units in May and the incomestatement we received showed a $2000 profit. Which figure do we believe.Prepare a brief explanation of what happened on the May income statement. 5-22 Absorption and Variable Costing; Product ConstantSales Fluctuate Sandi Scott obtained a patent on a small electronic deviceand organized Scott Products Inc. to produce and sell the device. During thefirst month of operations the device was very well received on the market soMs. Scott looked forward to a healthy profit. For this reason she wassurprised to see a loss for the month on her income statement. This statementwas prepared by her accounting service which takes great pride in providingits clients with timely financial data. The statement follows: Scott Products Inc. Income Statement Sales (40000 units)$200000 Variable expenses: Variable cost of goods sold$80 000 Variable selling andadministrative expenses30000 110000 Contribution margin90000 Fixed expenses: Fixed manufacturing overhead 7500095000 Fixed selling andadministrative expenses 20000 $(5000) Net operating loss Ms. Scott is discouraged over the loss shown for the monthparticularly because she had planned to use the statement to encourageinvestors to purchase stock in the new company. A friend who is a CPA insiststhat the company should be using absorption costing rather than variablecosting. He argues that if absorption costing had been used the company wouldprobably have reported a profit for the month. Selected cost data relating to the product and to the firstmonth of operations follow: Unit produced 50000 Units sold40000 Variable cost per unit: Direct materials$1.00 Direct Labor$0.80 Variable manufacturing overhead$0.20 Variable selling and administrative expenses$0. 75 Required: 1.Complete the following: a.Compute the unit product cost under absorptioncosting. b.Redo the companys income statement for themonth using absorption costing. c.Reconcile the variable and absorption costingnet operating income (loss) figures. 2.Was the CPA correct in suggesting that thecompany really earned a profit for the month? Explain. 3.During the second month of operations thecompany again produced 50000 units but sold 60000 units. (Assume no change intotal fixed costs.) a.Prepare a contribution format income statementfor the month using variable costing. b.Prepare an income statement for the month usingabsorption costing. c.Reconcile the variable costing and absorptioncosting net operating incomes. Problem 6-16 Second Stage Allocations and Product Margins AnimPix Inc. is a small company that createcomputer-generated animations for films and television. Much of the companyswork consists of short commercials for television but the company also doesrealistic computer animations for special effects in movies. The young founders of the company have become increasinglyconcerned with the economics of the business- particularly because manycompetitors have sprung up recently in the local area. To help understand thecompanys cost structure an activity-based cost systems has been designed.Three major activities are carried out in the company: animation conceptanimation production and contract administration. The animation conceptactivity is carried out at the contract proposal stage when the company bids onprojects. This is an intensive activity that involves individuals from allparts of the company in creating storyboards and prototype stills to be shownto the prospective client. After the client has accepted a project animationgoes into production and contract administration begins. Technical staff doalmost all of the work involved in animation production whereas theadministrative staff is largely responsible for contract administration. Theactivity cost pools and their activity measures and rates are listed below: Activity Cost PoolActivity Measure ActivityRate Animation concept.Number of proposals.. .$6000 per proposal Animation production.Minutes of animation.$7700 perminute of animation Contract administration.Number of contracts$6600 percontract These activity rates include all of the costs of thecompany except for the costs of idle capacity and organization-sustainingcosts. There are no direct labor or direct material costs. Preliminaryanalysis using these activity rates has indicated that the local commercialsegment of the market may be unprofitable. This segment is highly competitive.Producers of local commercials may ask several companies like AnimPix to bidwhich results in an unusually low ratio of accepted contracts to bids.Furthermore the animation sequences tend to be much shorter for localcommercials than for other work. Because animation work is billed at standardrates according to the running time of the completed animation the revenuesfrom these short projects tend to be below average. Data concerning activity inthe local commercials market appear below: Activity Measure Local Commercials Number of proposals20 Number ofanimations12 Number of contracts…8 The total sales for local commercials amounted to $240000. Required: 1.Determine the cost of serving the localcommercial market. 2.Prepare a report showing the margins earnedserving the local commercial market. (Remember 3.What would you recommend to managementconcerning the local commercials market? Problem 6-17 Comparing Tradition and Activity-Based ProductMargins Precision Manufacturing Inc. (PMI) makes two types ofindustrial component parts- the EX300 and the TX500. An absorption costingincome statement for the most recent period is shown below: Precision Manufacturing Inc. IncomeStatement Sales.$1700000 Cost of goods sold.1200000 Gross margins500000 Selling and administrativeexpenses….550000 Net operating loss $50000 PMI produced and sold 60000 units of EX300 at a price of$20 per unit and 12500 units of TX500 at a price $40 per unit. The companystraditional cost system allocates manufacturing overhead to products usingoverhead rate and direct labor dollars as the allocation base. Additionalinformation relating to the companys two product lines is shown below: EX300 TX500 Total Direct materials..$366325 $162550 $ 528875 Direct labor$120000 $42500 162500 Manufacturing overhead508 625 Cost of goods sold$1200000 The company has created an activity-based costing system toevaluate the profitability of its products. PMIs ABC implementation teamconcluded that the $50000 and $100000 of the companys advertising expensescould be directly traced to EX300 and TX500 respectively. The remainder of theselling and administrative expenses was organization-sustaining in nature. TheABC team also distributed the companys manufacturing overhead to fouractivities as shown below: ManufacturingActivity Activity Cost Pool (and Activity Measure) Overhead EX300 TX500 Total Machining (Machine-hours)..$198 250 90000 62500 152500 Setups (setup hours)..150000 75 300 375 Product-sustaining (number of products)…100000 1 1 1 Other (organization-sustaining costs)…60000 NA NA NA Total manufacturing overhead cost$508628 Required: 1.Using Exhibit 6-12 as a guide compute theproduct margins for the EX300 and TX500 under the companys traditional costingsystem. 2.Using Exhibit 6-10 as a guide compute theproduct margins for EX300 and TX500 under the activity-based costing system.

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