Raul Technologies Is Concerned That Increased Sales Did Not Result

question 100

Essay

Raul Technologies is 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 $35 and $3,500,000, respectively.
In 2017, 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 2017. In 2018, 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:

Flexible Budgeting

A budgeting process that adjusts for changes in the volume of activity, rather than remaining static.

Direct Labor

The wages and related benefits of employees who are directly involved in the production of goods or the delivery of services.

Direct Materials

Raw materials that are directly incorporated into a finished product and are easily traceable to specific goods or services.

Fixed Factory Overhead

Refers to the consistent, non-variable costs associated with operating a manufacturing facility, such as rent, salaries, and utility expenses.