Awesome Athletics, Inc. has developed a new design to produce hurdles that are used in track and field competition. The company’s hurdle design is innovative in that the hurdle yields when hit by a runner and its height is extraordinarily easy to adjust. Management estimates expected annual capacity to be 90,000 units; overhead is applied using expected annual capacity. The company’s cost accountant predicts the following current activities and related costs:
Standard unit variable manufacturing costs 12
Variable unit selling expense 5
Fixed manufacturing overhead 495,000
Fixed selling and administrative expenses 136,000
Selling price per unit 35
Units of sales 80,000
Units of production 85,00
Units in beginning inventory 10,000
Other than any possible under or overapplied fixed overhead, management expects no variances from the previous manufacturing costs. Under or overapplied fixed overhead is to written off to Cost of Goods Sold.
Required:
I. Determine the amount of under or overapplied fixed overhead using (a) variable costing and
(b) absorption costing.
2. Prepare projected income statements using (a) variable costing and (b) absorption costing.
3. Reconci Ie the incomes derived in part 2.
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