Owens Athletics,Inc

question 5

Essay

Owens Athletics,Inc.has developed a new design to produce hurdles that are used in track and field competition.The company's hurdle design is innovative in that the hurdle yields when hit by a runner and its height is extraordinarily easy to adjust.Management estimates expected annual capacity to be 90,000 units;overhead is applied using expected annual capacity.The company's cost accountant predicts the following current year activities and related costs:

Standard unit variable manufacturing costs	$12
Variable unit selling expense	$5
Fixed manufacturing overhead	$495,000
Fixed selling and administrative expenses	$136,000
Selling price per unit	$35
Units of sales	80,000
Units of production	85,000
Units in beginning inventory	10,000

Other than any possible under- or overapplied fixed overhead, management expects no variances from the previous manufacturing costs. Under- or overapplied fixed overhead is to be written off to Cost of Goods Sold.
Required:
1. Determine the amount of under- or overapplied fixed overhead using (a) variable costing and (b) absorption costing.
2. Prepare projected income statements using (a) variable costing and (b) absorption costing.
3. Reconcile the incomes derived in part 2.

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Definitions:

Publicly Traded Companies

Companies that have issued securities through an initial public offering and are traded on at least one stock exchange or in over-the-counter markets.

Audit Committee

A subset of a company's board of directors responsible for oversight of the financial reporting and disclosure process.

Financial Statements

Formal records of the financial activities and position of a business, individual, or other entity, typically including balance sheet, income statement, and cash flow statement.

Financial Reporting

Financial reporting involves the disclosure of financial results and related information to management and external stakeholders.