Graduate level accounting question. Must be done in 2.5 hours and must show work. 3rd question
(20 points) Esther recently started a new company to produce and sell her exciting new product.
Esther prepared the following income statements using variable costing for the first two
quarters of operation:
Sales ($25 per unit)
Variable cost of goods sold
Variable selling & admin.
Fixed manufacturing overhead
Fixed Selling and Admin.
Operating income (loss)
Additional cost information follows. Cost data remain the same for both quarters.
Selling & administrative costs:
Variable selling & admin.$2.00 per unit
Fixed selling & admin. $30,000 per qtr.
Variable mfg overhead
Total Var man. cost
$12.00 per unit
Fixed Man. OH
$70,000 per qtr.
a. Under absorption costing, when managers are evaluated based on (absorption costing)
segment profits these managers have incentives to overproduce. Thoroughly explain
why. b. Prepare an income statement for each of quarters 1 and 2 using absorption costing.
Assume a LIFO cost flow assumption. c. Explain why, in words, there is a difference between the absorption costing income
values (you computed these in your response to question 3b) and the reported variable
costing income values given at the beginning of the problem. Give a separate
explanation for each quarter?s difference.
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Sep 21, 2019EXPERT
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