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Helen Martin, CEO of Ivanhoe Industries, is concerned about the recent volatility in the company's operating income. She believes that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable. Helen asked Donald Robinson, Ivanhoe's inventory manager, to help her understand the issue. Donald reviewed the company's records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019, 2020, and 2021. Beginning inventory Production Sales Ending inventory Sales 2019 1,000 Total cost of goods sold Gross margin Selling expense Operating Income 40,000 (39,000) Sales Income Statement-Absorption Costing 2,000 Operating income Cost of goods sold Units in beginning inventory Units sold from current year production Income Statement-Variable Costing Variable production expenses Variable selling expenses Contribution margin Fixed manufacturing expenses Fixed selling expenses Year 2020 38,000 (39,500) 2,000 Donald also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow. 500 2021 500 40,000 (39,500) 1,000 $ 5,460,000 (93,000) (3,534,000) (3,627,000) 1,833,000 (605,000) $ 1,228,000 $ 5,460,000 (2,145,000) (156,000) 3,159,000 (1,520,000) (449,000) $ 1,190,000

Helen Martin, CEO of Ivanhoe Industries, is concerned about the recent volatility in the company's operating income. She believes that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable. Helen asked Donald Robinson, Ivanhoe's inventory manager, to help her understand the issue. Donald reviewed the company's records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019, 2020, and 2021. Beginning inventory Production Sales Ending inventory Sales 2019 1,000 Total cost of goods sold Gross margin Selling expense Operating Income 40,000 (39,000) Sales Income Statement-Absorption Costing 2,000 Operating income Cost of goods sold Units in beginning inventory Units sold from current year production Income Statement-Variable Costing Variable production expenses Variable selling expenses Contribution margin Fixed manufacturing expenses Fixed selling expenses Year 2020 38,000 (39,500) 2,000 Donald also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow. 500 2021 500 40,000 (39,500) 1,000 $ 5,460,000 (93,000) (3,534,000) (3,627,000) 1,833,000 (605,000) $ 1,228,000 $ 5,460,000 (2,145,000) (156,000) 3,159,000 (1,520,000) (449,000) $ 1,190,000

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Helen Martin, CEO of Ivanhoe Industries, is concerned about the recent volatility in the company's operating income. She believes that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable. Helen asked Donald Robinson, Ivanhoe's inventory manager, to help her understand the issue. Donald reviewed the company's records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019, 2020, and 2021. Beginning inventory Production Sales Ending inventory Sales 2019 1,000 40,000 (39,000) Total cost of goods sold Gross margin Selling expense Operating Income 2,000 Income Statement-Absorption Costing Contribution margin Cost of goods sold Units in beginning inventory Units sold from current year production Income Statement-Variable Costing Sales Variable production expenses Variable selling expenses Year Fixed manufacturing expenses Fixed selling expenses Operating income 2020 2,000 38,000 (39,500) Donald also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow. 500 2021 500 40,000 (39,500) 1,000 $ 5,460,000 (93,000) (3,534,000) (3,627,000) 1,833,000 (605,000) $ 1,228,000 $ 5,460,000 (2,145,000) (156,000) 3,159,000 (1,520,000) (449,000) $ 1,190,000
Transcribed Image Text:Helen Martin, CEO of Ivanhoe Industries, is concerned about the recent volatility in the company's operating income. She believes that since the number of units sold has been fairly stable over the past three years that operating income also should have been stable. Helen asked Donald Robinson, Ivanhoe's inventory manager, to help her understand the issue. Donald reviewed the company's records and compiled the following changes to Finished Goods Inventory (in units) for the years 2019, 2020, and 2021. Beginning inventory Production Sales Ending inventory Sales 2019 1,000 40,000 (39,000) Total cost of goods sold Gross margin Selling expense Operating Income 2,000 Income Statement-Absorption Costing Contribution margin Cost of goods sold Units in beginning inventory Units sold from current year production Income Statement-Variable Costing Sales Variable production expenses Variable selling expenses Year Fixed manufacturing expenses Fixed selling expenses Operating income 2020 2,000 38,000 (39,500) Donald also gathered the 2019 income statements prepared using absorption costing and variable costing, which follow. 500 2021 500 40,000 (39,500) 1,000 $ 5,460,000 (93,000) (3,534,000) (3,627,000) 1,833,000 (605,000) $ 1,228,000 $ 5,460,000 (2,145,000) (156,000) 3,159,000 (1,520,000) (449,000) $ 1,190,000
Unit product cost using variable costing Unit product cost using absorption costing Income Statement-Absorption Costing Sales Cost of goods sold Gross margin Variable costs-selling Fixed selling costs Operating Income Sales Income Statement-Variable Costing Variable costs-production Variable costs-selling Contribution margin Fixed selling costs $ Prepare variable and absorption costing income statements for 2020 and 2021. Assume that sales price remains constant across all years. (Round answers to 0 decimal places, e.g. 5,275.) Fixed manufacturing costs v Operating Income $ $ $ 2019 $ 2020 55 93 2020 449000 449000 $ 1520000 $ 2020 2021 55 95 2021 449000 449000 $ 1520000 $ 2021 55 93
Transcribed Image Text:Unit product cost using variable costing Unit product cost using absorption costing Income Statement-Absorption Costing Sales Cost of goods sold Gross margin Variable costs-selling Fixed selling costs Operating Income Sales Income Statement-Variable Costing Variable costs-production Variable costs-selling Contribution margin Fixed selling costs $ Prepare variable and absorption costing income statements for 2020 and 2021. Assume that sales price remains constant across all years. (Round answers to 0 decimal places, e.g. 5,275.) Fixed manufacturing costs v Operating Income $ $ $ 2019 $ 2020 55 93 2020 449000 449000 $ 1520000 $ 2020 2021 55 95 2021 449000 449000 $ 1520000 $ 2021 55 93
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