Chapter 19: Serial Problem

Let’s break down the given problems one by one to help you prepare your solutions: Problem 1: Income Statement for Business Solutions Scenario: Santana Rey expects sales of 300 workstations at $3,000 each for 2021. You are asked to prepare income statements under both absorption and variable costing for different production scenarios. 1(a). Absorption Costing Income Statement (300 Workstations Produced, 300 Sold) Steps: 1. Calculate Sales Revenue: Sales Revenue=300 workstations×3,000 2. Compute Cost of Goods Sold (COGS) under Absorption Costing: o Absorption costing includes all manufacturing costs, which may consist of direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead allocated to units produced. 3. Calculate Gross Profit: Gross Profit=Sales Revenue−COGS 4. Deduct Selling and Administrative Expenses: o Separate into variable and fixed components to find the total selling and administrative expenses. Net Income=Gross Profit−Selling and Administrative Expenses 1(b). Absorption Costing Income Statement (320 Workstations Produced, 300 Sold) In this scenario, 20 workstations remain in inventory. The cost of these additional units will include the fixed manufacturing overhead. 2(a). Variable Costing Income Statement (300 Workstations Produced, 300 Sold) Steps: 1. Calculate Sales Revenue: Same as above. 2. Compute Variable COGS: Only include the variable portion of manufacturing costs (direct materials, direct labor, and variable manufacturing overhead). 3. Calculate Contribution Margin: Contribution Margin=Sales Revenue−Total Variable Costs(Variable COGS + Variable Selling and Admin) 4. Deduct Fixed Costs: o Fixed manufacturing overhead and fixed selling and administrative expenses. Net Income=Contribution Margin−Fixed Costs 2(b). Variable Costing Income Statement (320 Workstations Produced, 300 Sold) In this scenario, the remaining 20 workstations in inventory do not carry the fixed manufacturing overhead. Problem 3: Absorption vs. Variable Costing Analysis Review Results: When 320 workstations are produced but only 300 are sold, absorption costing will defer some of the fixed overhead costs into inventory. Thus, absorption costing typically yields a higher income when production exceeds sales due to deferred fixed costs in ending inventory. • • Absorption Costing Income = Higher when inventory builds up. Variable Costing Income = Only the units sold are considered for fixed overhead expenses. Problem 4: Contribution Margin Analysis for Apple and Competitors 1. Compute Contribution Margin Ratio: Contribution Margin Ratio=Contribution MarginSales Revenue\text{Contrib ution Margin Ratio} = \frac{\text{Contribution Margin}}{\text{Sales Revenue}}Contribution Margin Ratio=Sales RevenueContribution Margin Contribution Margin = Sales Revenue - Variable Costs 2. Performance Evaluation: o Compare the contribution margin ratios for each product line or company. Ethics Challenge & Analysis • • Ethical Implications of Absorption Costing: By increasing production without sales, companies can manipulate reported income, which raises ethical concerns about misrepresenting financial health. Recommendation: Explain to Gary Price how increasing production inflates income by spreading fixed overhead over more units, even when sales do not increase. Next Steps If you want to dive deeper into each calculation or have specific numbers for production costs, sales, and overhead, we can work through them step-by-step with given data. Let me know if you’d like to move forward with any specific part of these problems or if you need detailed examples.