Zeflax manufactures plastic bottles for bikes that the company sells for $4.00 per bottle. Last year the company produced 230,000 bottles and soled 200,000 bottles. This year Zeflax produced 200,000 bottles and sold 230,000. In both years Zeflaxs fixed manufacturing cost was 500,00 and its variable manufacturing cost was 1.00 per bottle. The president of Zeflax commented, I don't understand these crazy financial statements. Our prices and costs didn't change, we sell more bottles this year and we show lower income. Something has gone wrong.
a. prepare income statements for Zeflax for last year and this year using absorption costing. Assume Zeflaxs only costs are the fixed and varible manufacturing costs given in the problem.
b. prepare income statements for Zeflax for last year and this year using variable costing. Assume Zeflaxxs only costs are the fixed and variable manufacturing costs given in the problem.
c. explain to the president of Zeflax in nontechnical terms why the financial statements prepared by the accountant in part a and b are not in error. In other words, explain to the president why net income fell this year from last year even though Zeflax sold more botles.