Dynamic Designs,Inc

question 137

Essay

Dynamic Designs,Inc.has developed a new design to produce track shoes that are used in cross-country races.The company's shoe design is innovative in that the insole is made od a product that provides a greater cushion and adapts more easily to a runner's foot.Management estimates expected annual capacity to be 80,000 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	$140
Variable unit selling expense	$6
Fixed manufacturing overhead	$2,400,000
Fixed selling and administrative expenses	$164,000
Selling price per unit	$225
Units of sales	70,000
Units of production	81,000
Units in beginning inventory	15,000

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.