Solved: Georgia Shacks produces small outdoor buildings

The company beg

Georgia Shacks produces small outdoor buildings The company beg

Georgia Shacks produces small outdoor buildings. The company began operations in 2010,
producing 2,000 buildings and selling 1,500. A variable costing income statement for 2010
follows. During the year, variable production costs per unit were $800 for direct material, $300
for direct labor, and $200 for overhead.
GEORGIA SHACKS
Income Statement (variable Costing)
For the Year Ended December 32, 2010

The company president is upset about the net loss because he wanted to borrow funds to
expand capacity.
a. Prepare a pre-tax absorption costing income statement.
b. Explain the source of the difference between the pre-tax income and loss figures under the
two costing systems.
c. Would it be appropriate to present an absorption costing income statement to the local
banker, considering the company president’s knowledge of the net loss determined under
variable costing? Explain.
d. Assume that during the second year of operations, Georgia Shacks produced 2,000
buildings, sold 2,200, and experienced the same total fixed costs as in 2010. For the second
year:
1. Prepare a variable costing pre-tax income statement.
2. Prepare an absorption costing pre-tax income statement.
3. Explain the difference between the incomes for the second year under the twosystems.

Georgia Shacks produces small outdoor buildings The company beg

ANSWER
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