P6-8A Dilithium Batteries is a division of Enterprise Corporation. The division manufactures and sells a

| October 22, 2018

P6-8A
Dilithium Batteries is a division of Enterprise Corporation. The division
manufactures and sells a long-life battery used in a wide variety of
applications. During the coming year it expects to sell 60,000 units for $30.00
per unit. Nyota Uthura is the division manager. She is considering producing
either 60,000 or 90,000 units during the period. Other information is presented
in the schedule.
Division Information for 2014

Beginning inventory

0

Expected sales in units

60,000

Selling price per unit

$30.00

Variable manufacturing costs per unit

$12.00

Fixed manufacturing overhead costs (total)

$540,000

Fixed manufacturing overhead costs per unit:

Based on 60,000 units ($540,000 ÷ 60,000 units)

$9.00

Based on 90,000 units ($540,000 ÷ 90,000 units)

$6.00

Manufacturing cost per unit:

Based on 60,000 units ($12.00 variable + $9.00
fixed)

$21.00

Based on 90,000 units ($12.00 variable + $6.00
fixed)

$18.00

Variable selling and administrative expenses

$2.00

Fixed selling and administrative expenses (total)

$50,000

Instructions(a) Prepare
an absorption costing income statement, with one column showing the results if 60,000
units are produced and one column showing the results if 90,000 units are
produced.
(b) Prepare
a variable costing income statement, with one column showing the results if 60,000
units are produced and one column showing the results if 90,000 units are
produced.
(c) Reconcile
the difference in net incomes under the two approaches and explain what
accounts for this difference.

(d) Discuss the relative usefulness of the variable
costing income statements versus the absorption costing income statements for
decision making and for evaluating the manager’s performance.

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