(continued) Problem 6-17A 3 b. The absorption costing income statements appears below: Year 1 Year 2 Year 3 Sales $3,360,000 $2,800,000 $3,640,000 Cost of goods sold 3,060,000 2,500,000 3,390,000 Gross margin 300,000 300,000 250,000 Selling and administrative expenses 300,000 280,000 310,000 Net operating income (loss) $ 0 $ 20,000 $ (60,000) Cost of goods sold computations: Year 1: 60,000 units × $51 per unit = $3,060,000 Year 2: 50,000 × $50 per unit = $2,500,000 Year 3: (25,000 × $50 per unit) + (40,000 × $53.50 per unit) = $3,390,000 4. Year 1 Year 2 Year 3 Units sold 60,000 50,000 65,000 Break-even point in units 60,000 60,000 60,000 Units above (below) break-even point 0 (10,000) 5,000 Variable costing net operating income (loss) $0 $(80,000) $ 40,000 Absorption costing net operating income (loss) $0 $ 20,000 $(60,000) The absorption costing net operating incomes in 2 and 3 are counterintuitive. In year 2, the number of units sold is below the break-even point; however, absorption costing reports a net operating income greater than zero. In year 3, the number of units sold is above the break-even point; however, absorption costing reports a net operating income less than zero.
Problem 6-17A (continued) 3 b. The absorption costing income statements appears below: Year 1 Year 2 Year 3 Sales $3,360,000 $2,800,000 $3,640,000 Cost of goods sold 3,060,000 2,500,000 3,390,000 Gross margin 300,000 300,000 250,000 Selling and administrative expenses 300,000 280,000 310,000 Net operating income (loss) $ 0 $ 20,000 $ (60,000) Cost of goods sold computations: Year 1: 60,000 units × $51 per unit = $3,060,000 Year 2: 50,000 × $50 per unit = $2,500,000 Year 3: (25,000 × $50 per unit) + (40,000 × $53.50 per unit) = $3,390,000 4. Year 1 Year 2 Year 3 Units sold 60,000 50,000 65,000 Break-even point in units 60,000 60,000 60,000 Units above (below) break-even point 0 (10,000) 5,000 Variable costing net operating income (loss) $0 $(80,000) $ 40,000 Absorption costing net operating income (loss) $0 $ 20,000 $(60,000) The absorption costing net operating incomes in 2 and 3 are counterintuitive. In year 2, the number of units sold is below the break-even point; however, absorption costing reports a net operating income greater than zero. In year 3, the number of units sold is above the break-even point; however, absorption costing reports a net operating income less than zero.
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