Lillee-Walker Company Was Concerned That Increased Sales Did Not Result

question 204

Essay

Lillee-Walker Company was concerned that increased sales did not result in increased profits for 2018.Both variable unit and total fixed manufacturing costs for 2017 and 2018 remained constant at $20 and $2 000 000,respectively.
In 2017,the company produced 100 000 units and sold 80 000 units at a price of $50 per unit.There was no beginning inventory in 2017.In 2018,the company made 70 000 units and sold 90 000 units at a price of $50.Selling and administrative expenses were all fixed at $100 000 each year.
Required:
a.Prepare income statements for each year using absorption costing.
b.Prepare income statements for each year using variable costing.
c.Explain why the income was different each year using the two methods.Show computations.
_____________________________________________________________________________________________
_____________________________________________________________________________________________

---

Definitions:

Non-Interest-Bearing Note

A financial instrument or promissory note that does not accrue interest over time, meaning the borrower repays only the principal amount.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from a country's central bank.

Actual Interest Rate

The actual rate of interest earned or paid on an investment or loan, considering compounding and other factors, as opposed to the nominal rate.

Non-Interest-Bearing Note

A type of debt instrument that does not pay interest to the holder, instead being issued at a discount to its redemption value.