EraCruz company had the following operating data for its first two years of operation:
Variable costs per unit:
Direct materials $8
Direct Labor 4
Variable Overhead 1.5
Fixed Costs Per Year:
Overhead 90,000
Selling and admin 23,450
Veracruz produced 30,000 units in the first year and sold 25,000. INn the second year, it produced 25,000 units and sold 30,000 units. The selling price per unit each year was $21. Veracruz uses an actual costing system for product costing.
1.) Prepare income statement for both years using absorption costing. Has firm performance, as measured by income, improved or declined frm year 1 to year 2?
2.) Prepare income statement for both years using variable costing. Has firm performance, as measured by income, improved or declined frm year 1 to year 2?
3.) Which methid do you think most accurately measures firm performance? Why?