PROBLEM 5-17
Nickelson Company
Variable and Absorption Costing Unit Product Costs and Income Statements
P5-17 Nickleson
Company manufactures and sells one product. The following information pertains
to each of the company’s first three years of operation:
Variable
costs per unit:
Manufacturing:
Direct
materials ……………………………………. $ 25 Direct labor
…………………………………………… $16
Variable
manufacturing overhead ………………$5
Variable
selling and administrative………………..$2
Fixed costs
per year:
Fixed
manufacturing overhead…………………….. $ 300, 000
Fixed
selling and administrative expenses……. $ 180, 000
During its
first year of operations Nickelson produced 60, 000 units and sold 60,000
units.
During its
second year of operations it produced 75, 000 units and sold 50,000 units. In
its third year, Nickelson produced 40, 000 units and sold 65, 000 units. The
selling price of the company’s product is $ 56 per unit.
REQUIRED:
1. Compute the company’s break-even-point in units sold.
2. Assume
the company uses variable costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare
an Income statement for year 1, year, 2, and year 3.
3. Assume
the company uses absorption costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare an
income statement for year 1, year 2, and year 3.
4. Compare
the net operating income figures that you computed in requirements 2 and 3 to
the break-even point that you computed in requirement 1 . Which net operating
income figure seem counterintuitive? Why?
PROBLEM 5-17
Nickelson Company
Variable and Absorption Costing Unit Product Costs and Income Statements
P5-17 Nickleson
Company manufactures and sells one product. The following information pertains
to each of the company’s first three years of operation:
Variable
costs per unit:
Manufacturing:
Direct
materials ……………………………………. $ 25 Direct labor
…………………………………………… $16
Variable
manufacturing overhead ………………$5
Variable
selling and administrative………………..$2
Fixed costs
per year:
Fixed
manufacturing overhead…………………….. $ 300, 000
Fixed
selling and administrative expenses……. $ 180, 000
During its
first year of operations Nickelson produced 60, 000 units and sold 60,000
units.
During its
second year of operations it produced 75, 000 units and sold 50,000 units. In
its third year, Nickelson produced 40, 000 units and sold 65, 000 units. The
selling price of the company’s product is $ 56 per unit.
REQUIRED:
1. Compute the company’s break-even-point in units sold.
2. Assume
the company uses variable costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare
an Income statement for year 1, year, 2, and year 3.
3. Assume
the company uses absorption costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare an
income statement for year 1, year 2, and year 3.
4. Compare
the net operating income figures that you computed in requirements 2 and 3 to
the break-even point that you computed in requirement 1 . Which net operating
income figure seem counterintuitive? Why?
PROBLEM 5-17
Nickelson Company
Variable and Absorption Costing Unit Product Costs and Income Statements
P5-17 Nickleson
Company manufactures and sells one product. The following information pertains
to each of the company’s first three years of operation:
Variable
costs per unit:
Manufacturing:
Direct
materials ……………………………………. $ 25 Direct labor
…………………………………………… $16
Variable
manufacturing overhead ………………$5
Variable
selling and administrative………………..$2
Fixed costs
per year:
Fixed
manufacturing overhead…………………….. $ 300, 000
Fixed
selling and administrative expenses……. $ 180, 000
During its
first year of operations Nickelson produced 60, 000 units and sold 60,000
units.
During its
second year of operations it produced 75, 000 units and sold 50,000 units. In
its third year, Nickelson produced 40, 000 units and sold 65, 000 units. The
selling price of the company’s product is $ 56 per unit.
REQUIRED:
1. Compute the company’s break-even-point in units sold.
2. Assume
the company uses variable costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare
an Income statement for year 1, year, 2, and year 3.
3. Assume
the company uses absorption costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare an
income statement for year 1, year 2, and year 3.
4. Compare
the net operating income figures that you computed in requirements 2 and 3 to
the break-even point that you computed in requirement 1 . Which net operating
income figure seem counterintuitive? Why?
PROBLEM 5-17
Nickelson Company
Variable and Absorption Costing Unit Product Costs and Income Statements
P5-17 Nickleson
Company manufactures and sells one product. The following information pertains
to each of the company’s first three years of operation:
Variable
costs per unit:
Manufacturing:
Direct
materials ……………………………………. $ 25 Direct labor
…………………………………………… $16
Variable
manufacturing overhead ………………$5
Variable
selling and administrative………………..$2
Fixed costs
per year:
Fixed
manufacturing overhead…………………….. $ 300, 000
Fixed
selling and administrative expenses……. $ 180, 000
During its
first year of operations Nickelson produced 60, 000 units and sold 60,000
units.
During its
second year of operations it produced 75, 000 units and sold 50,000 units. In
its third year, Nickelson produced 40, 000 units and sold 65, 000 units. The
selling price of the company’s product is $ 56 per unit.
REQUIRED:
1. Compute the company’s break-even-point in units sold.
2. Assume
the company uses variable costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare
an Income statement for year 1, year, 2, and year 3.
3. Assume
the company uses absorption costing:
a. Compute
the unit product cost for year 1, year 2, and year 3.
b. Prepare an
income statement for year 1, year 2, and year 3.
4. Compare
the net operating income figures that you computed in requirements 2 and 3 to
the break-even point that you computed in requirement 1 . Which net operating
income figure seem counterintuitive? Why?
