Exercise 7-4 (continued)
Part 2:
Year 1 Year 2 Year 3 Year 4
Beginning inventory... 6,000 2,000 1,775 5,463
Production ... 18,000 20,775 22,688 20,936
Sales... 22,000 21,000 19,000 20,000
Ending ... 2,000 1,775 5,463 6,399
Variable costing net
operating income .. $770,600 $640,600 $380,600 $510,600
Fixed manufacturing
overhead in begin-
ning inventory*... $326,455 $159,600 $122,745 $345,890
overhead in ending
inventory... $159,600 $122,745 $345,890 $439,035
Absorption costing net
operating income .. $603,745 $603,745 $603,745 $603,745
* Fixed manufacturing overhead in beginning inventory is assumed in both
parts 1 and 2 for Year 1. A FIFO inventory flow assumption is used.
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
Solutions Manual, Chapter 7 355
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