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Required: Calculate the equivalent units for conversion for the month in
the first processing department. (Points : 25)
Question 1.1. (TCO D) The following absorption costing income
statement and additional data are available from the accounting 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