Essay
Owens 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 year 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 | 85,000 |
| Units in beginning inventory | 10,000 |
Required:
1. 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. Reconcile the incomes derived in part 2.
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