Raul Technologies Is Concerned That Increased Sales Did Not Result

question 173

Essay

Raul Technologies is concerned that increased sales did not result in increased profits for 2016.Both variable unit and total fixed manufacturing costs for 2015 and 2016 remained constant at $35 and $3,500,000,respectively.
In 2015,the company produced 100,000 units and sold 80,000 units at a price of $87.50 per unit.There was no beginning inventory in 2015.In 2016,the company made 70,000 units and sold 90,000 units at a price of $87.50.Selling and administrative expenses were all fixed at $350,000 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.

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Definitions:

Variable Input

Inputs or resources whose quantity can be changed in the short term to adjust the level of production, such as labor or raw materials.

Labor Market

The marketplace in which employers find workers and workers find jobs, characterized by the demand and supply of labor.

Marginal Revenue Product

The additional revenue generated from employing one more unit of a factor of production, holding other factors constant.

Worker

An individual employed to perform tasks or services in exchange for compensation, such as wages or salaries.