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Benson Manufacturing pays its production managers a bonus based on the company’s profitability
Benson Manufacturing pays its production managers a bonus based on the company’s profitability. During the two most recent years, the company maintained the same cost structure to manufacture its products.
| Year | Units Produced | Units Sold | ||||
| Production and Sales | ||||||
| Year 2 | 4,000 | 4,000 | ||||
| Year 3 | 6,000 | 4,000 | ||||
| Cost Data | ||||||
| Direct materials | $ | 14.90 | per unit | |||
| Direct labor | $ | 22.70 | per unit | |||
| Manufacturing overhead—variable | $ | 11.90 | per unit | |||
| Manufacturing overhead—fixed | $ | 97,800 | ||||
| Variable selling and administrative expenses | $ | 8.60 | per unit sold | |||
| Fixed selling and administrative expenses | $ | 58,000 | ||||
(Assume that selling and administrative expenses are associated with goods sold.)
Benson sells its products for $109.30 per unit.
Required
Task 1: Prepare income statements based on absorption costing for Year 2.
| Benson Manufacturing | ||
| Absorption Costing Income Statement | ||
| or the Year Ended Dec. 31, Year 2 | ||
| Revenues | $437,200 | |
| Cost of Goods Sold: | $90,800 | |
| Direct Labor | 59,600 | |
| Direct Materials | ||
| Manufacturing overhead | ||
| 55,200 | ||
| Gross Margin | 382,000 | |
| Selling and Administrative Expenses | ||
| Net Income |
Task 2: Prepare income statements based on absorption costing for Year 3.
| Benson Manufacturing | ||
| Absorption Costing Income Statement | ||
| For the Year Ended Dec. 31, Year 2 | ||
| Revenues | ||
| Cost of Goods Sold: | ||
| Direct Labor | ||
| Direct Materials | ||
| Manufacturing overhead | ||
| Gross Margin | ||
| Selling and Administrative Expenses | ||
| Net Income | ||
| Ending Inventory for Year 3 |
Task 3: Determine the costs of ending inventory for Year 3.
| Ending Inventory |
Task 4: Prepare income statements based on variable costing for Year 2.
| Benson Manufacturing | ||
| Variable Costing Income Statement | ||
| For the Year Ended Dec. 31, Year 3 | ||
| Revenues | ||
| Variable Costs: | ||
| Direct Labor | ||
| Direct Materials | ||
| Variable manufacturing overhead | ||
| Variable Selling and administrative expenses | ||
| Contribution Margin | ||
| Fixed manufacturing overhead | ||
| Fixed selling and administrative expenses | ||
| Net Income |
Task 4: Prepare income statements based on variable costing for Year 3.
| Benson Manufacturing | ||
| Variable Costing Income Statement | ||
| For the Year Ended Dec. 31, Year 3 | ||
| Revenues | ||
| Variable Costs: | ||
| Direct Labor | ||
| Direct Materials | ||
| Variable manufacturing overhead | ||
| Variable Selling and administrative expenses | ||
| Contribution Margin | ||
| Fixed manufacturing overhead | ||
| Fixed selling and administrative expenses | ||
| Net Income |
Expert Solution
| Task 1: | Benson Manufacturing | ||
| Absorption Costing Income Statement | |||
| For the year ended December 31, Year 2 | |||
| Revenues (4,000*109.3) | 4,37,200 | ||
| Cost of Goods Sold: | |||
| Direct Material (4,000*14.9) | 59,600 | ||
| Direct Labor (4,000*22.7) | 90,800 | ||
| Manufacturing Overhead (4,000*11.9)+97,800. | 1,45,400 | ||
| -2,95,800 | |||
| Gross Margin | 1,41,400 | ||
| Selling and Administrative Expenses (4,000*8.6)+58,000 | -92,400 | ||
| Net Income | $ 49,000 | ||
| Task 2: | Benson Manufacturing | ||
| Absorption Costing Income Statement | |||
| For the year ended December 31, Year 3 | |||
| Revenues (4,000*109.3) | 4,37,200 | ||
| Cost of Goods Sold: | |||
| Direct Material (4,000*14.9) | 59,600 | ||
| Direct Labor (4,000*22.7) | 90,800 | ||
| Manufacturing Overhead (4,000*11.9)+(97,800*4,000/6,000) | 1,12,800 | ||
| -2,63,200 | |||
| Gross Margin | 1,74,000 | ||
| Selling and Administrative Expenses (4,000*8.6)+58,000 | -92,400 | ||
| Net Income | $ 81,600 | ||
| Task 3: | Cost of Ending Inventory in Year 3 | ||
| Number of Units Ending (6,000-4,000) | 2,000 Units | ||
| Direct Material (2,000*14.9) | 29,800 | ||
| Direct Labor (2,000*22.7) | 45,400 | ||
| Manufacturing Overhead (2,000*11.9)+(97,800*2,000/6,000) | 56,400 | ||
| Cost of Ending Inventory | $ 1,31,600 | ||
| Task 4: | Benson Manufacturing | ||
| Variable Costing Income Statement | |||
| For the year ended December 31, Year 2 | |||
| Revenues (4,000*109.3) | 4,37,200 | ||
| Cost of Goods Sold: | |||
| Direct Material (4,000*14.9) | 59,600 | ||
| Direct Labor (4,000*22.7) | 90,800 | ||
| Variable Manufacturing Overhead (4,000*11.9) | 47,600 | ||
| Variable Selling and Administrative Expenses (4,000*8.6) | 34,400 | ||
| -2,32,400 | |||
| Contribution Margin | 2,04,800 | ||
| Less: Fixed Manufacturing Overhead | -97,800 | ||
| Less: Fixed Selling and Administrative Expenses | -58,000 | ||
| Net Income | $ 49,000 | ||
| Task 5: | Benson Manufacturing | ||
| Variable Costing Income Statement | |||
| For the year ended December 31, Year 3 | |||
| Revenues (4,000*109.3) | 4,37,200 | ||
| Cost of Goods Sold: | |||
| Direct Material (4,000*14.9) | 59,600 | ||
| Direct Labor (4,000*22.7) | 90,800 | ||
| Variable Manufacturing Overhead (4,000*11.9) | 47,600 | ||
| Variable Selling and Administrative Expenses (4,000*8.6) | 34,400 | ||
| -2,32,400 | |||
| Contribution Margin | 2,04,800 | ||
| Less: Fixed Manufacturing Overhead | -97,800 | ||
| Less: Fixed Selling and Administrative Expenses | -58,000 | ||
| Net Income | $ 49,000 |
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