Reference no: EM133201812
It is the end of 2017. Z-Var Corporation began operations in January 2016. The company is so named because it has no variable costs. All its costs are? fixed; they do not vary with output. Z-Var Corp. is located on the bank of a river and has its own hydroelectric plant to supply? power, light, and heat. The company manufactures a synthetic fertilizer from air and river water and sells its product at a price that is not expected to change. It has a small staff of? employees, all paid fixed annual salaries. The output of the plant can be increased or decreased by pressing a few buttons on a keyboard. The following budgeted and actual data are for the operations of Z-Var.
The company uses budgeted production as the denominator level and writes off any? production-volume variance to cost of goods sold.
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2016
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2017ª
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Sales
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30,000 tons
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30,000 tons
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Production
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60,000 tons
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0 tons
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Selling price
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$90 per ton
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$90 per ton
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Costs (all fixed):
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Manufacturing
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$2,580,000
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$2,580,000
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Operating (nonmanufacturing)
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$102,000
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$102,000
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Prepare income statements with one column for 2016?, one column for 2017?, and one column for the two years together using? (a) variable costing and? (b) absorption costing.
What is the breakeven point under? (a) variable costing and? (b) absorption? costing?
What inventory costs would be carried in the balance sheet on December? 31, 2016 and 2017?, under each? method?
Assume that the performance of the top manager of Z-Var is evaluated and rewarded largely on the basis of reported operating income. Which costing method would the manager? prefer? Why?
Requirement 1. Prepare income statements with one column for 2016?, one column for 2017?, and one column for the two years together using? (a) variable costing and? (b) absorption costing. ?(Use parentheses or a minus sign for an operating? loss.)
Start by preparing the? (a) variable costing income statement for 2016?, 2017?, and the two year total.
Revenue
Fixed costs:
Manufacturing costs
Operating costs
Total fixed costs
Operating income (loss)