02 Mar ABSORPTION ANDVARIABLECOSTING, SEGMENTEDINCOMESTAT
ABSORPTION ANDVARIABLECOSTING, SEGMENTEDINCOMESTATEMENTSAcme Novelty Company produces coin purses and key chains. Selected data for the past year are as follows:Coin PurseKey ChainProduction (units)100,000200,000Sales (units)90,000210,000Selling price$5.50$4.50Direct labor hours50,00080,000Manufacturing costs:Direct materials$ 75,000$100,000Direct labor250,000400,000Variable overhead20,00024,000Fixed overhead50,00080,000Nonmanufacturing costs:Variable selling30,00060,000Direct fixed selling35,00040,000Common fixed selling25,00025,000Budgeted fixed overhead for the year, $130,000, equaled the actual fixed overhead. Fixed overhead is assigned to products using a plant wide rate based on expected direct labor hours, which were 130,000. The company had 10,000 key chains in inventory at the beginning of the year. These key chains had the same unit cost as the key chains produced during the year.Required:1. Compute the unit cost for the coin purses and key chains using the variable costing method. Compute the unit cost using absorption costing.2. Prepare an income statement using absorption costing.3. Prepare an income statement using variable costing.4. Explain the reason for any difference between absorption- and variable-costing operating incomes.5. Prepare a segmented income statement using products as segments.
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