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 %. Items Year ( s ) Amount 18 % Factor Present Value Cost of machinery Now ($ 700,000 ) 1 ($ 700,000 ) Working capital increase Now ($ 60,000 ) 1 ($ 60,000 ) Annual cash inflows 1 – 10 $ 150,000 4.494 674,100 Overhaul 5 ($ 45,000 ) 0.437 ($ 19,665 ) Salvage value 10 $ 70,000 0.191 13,370 Working capital release 10 $ 60,000 0.191 11,460 Net present value ($ 80,735 ) Required :