Problem:
Adriana Lopez expected sales of her line of computer workstation furniture to equal 300 workstations (at a sales price of $3,000) for 2010. The workstations' manufacturing costs include the following.
Direct materials . . . . . . . . . . $800 per unit
Direct labor . . . . . . . . . . . . . $400 per unit
Variable overhead . . . . . . . . $100 per unit
Fixed overhead . . . . . . . . . . $24,000 per year
The selling expenses related to these workstations follow.
Variable selling expenses . . . . . . . $50 per unit
Fixed selling expenses . . . . . . . . . $4,000 per year
Adriana is considering how many workstations to produce in 2010. She is confident that she will be able to sell any workstations in her 2010 ending inventory during 2011. However, Adriana does not want to overproduce as she does not have sufficient storage space for many more workstations.
Required
1. Compute Success Systems' absorption costing income assuming
a. 300 workstations are produced.
b. 320 workstations are produced.
2. Compute Success Systems' variable costing income assuming
a. 300 workstations are produced.
b. 320 workstations are produced.
3. Explain to Adriana any differences in the income figures determined in parts 1 and 2. How should Adriana use the information from parts 1 and 2 to help make production decisions?