records of Bernon Co. for the month ended May 31, XXXX. During the accounting period, 17,000 units were manufactured and sold at a price of $ 60 per unit. There were no beginning inventories. Bernon Co. Absorption Costing Income Statement for the Month Ended May 31, XXXX Sales( 17,000 @ $ 60) $ 1,020,000 Cost of goods sold 612,000 Gross profit $ 408,000 Selling and administrative expenses 66,000 Income from operations $ 342,000
Additional Information: Cost Total Cost Number of Units Unit Cost Manufacturing costs: Variable $ 442,000 17,000 $ 26 Fixed 170,000 17,000 10 Total $ 612,000 $ 36
Selling and administrative expenses: Variable($ 2 per unit sold) $ 34,000 Fixed 32,000 Total $ 66,000 Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.( Points: 30) Question 2.2.( TCO I)( Ignore income taxes in this problem.) Simpson Beauty Products Corporation is considering the production of a new conditioning shampoo that will require the purchase of new mixing machinery. The machinery will cost $ 700,000, is expected to have a useful life of 10 years, and is expected to have a salvage value of $ 70,000 at the end of 10 years. The machinery will also need a $ 45,000 overhaul at the end of Year 5. A $ 60,000 increase in working capital will be needed for this investment project. The working capital will be released at the end of the 10 years. The new shampoo is expected to generate net cash inflows of $ 150,000 per year for each of the 10 years. Simpson ' s discount rate is 18 %.