Santana Rey expected sales of her line of computer workstation furniture to equal 300 workstations (at a sales price of $3,000) for 2012. The workstations’ manufacturing costs include the following.
| Direct materials | $800 per unit |
| Direct labor | $400 per unit |
| Variable overhead | $100 per unit |
| Fixed overhead | $24,000 per year |
The selling expenses related to these workstations follow.
Variable selling expenses $50 per unit
Fixed selling expenses $4,000 per year
Santana is considering how many workstations to produce in 2012. She is confident that she will be able to sell any workstations in her 2012 ending inventory during 2013. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations.
Required:
1. Compute Business Solutions’ absorption costing income assuming.
a. 300 workstations are produced.
b. 320 workstations are produced.
2. Compute Business Solutions’ variable costing income assuming.
a. 300 workstations are produced.
b. 320 workstations are produced.
3. Explain to Santana any differences in the income figures determined in parts 1 and 2.
How should Adriana use the information from parts 1 and 2 to help make production decisions?
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