The Miller Company Had the Following Results for Its First

question 120

Essay

The Miller Company had the following results for its first two years of operation:



In Year 1, the company produced and sold 40,000 units of its only product; in Year 2, the company again sold 40,000 units, but increased production to 50,000 units. The company's variable production cost is $5 per unit, and its fixed manufacturing overhead cost is $600,000 a year. Fixed manufacturing overhead costs are applied to the product on the basis of each year's unit production (i.e., a new fixed overhead rate is computed each year). Variable selling and administrative expenses are $2 per unit sold.

Required:

a) Compute the unit product cost for each year under absorption costing and under variable costing.
b) Prepare an income statement for each year, using the contribution format with variable costing.
c) Reconcile the variable costing and absorption costing income figures for each year.
d) Explain why the operating income for Year 2 under absorption costing was higher than the operating income for Year 1, although the same number of units were sold in each year.

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Definitions:

Sensory Experiences

The subjective experiences generated through the reception and interpretation of sensory information by the brain.

Environmental Stimuli

External factors or conditions in the environment that can evoke responses or reactions in organisms.

Perceptual Categorizations

The process by which the brain groups sensory inputs into recognizable categories.

Nativist Philosopher

An individual who theorizes that certain skills or abilities are innate and not acquired through learning.