Santana Rey expects sales of Business Solutions’s line of computer workstation furniture to equal 300 workstations (at a sales price of \(3,000 each) for 2018. The workstations’ manufacturing costs include the following.
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \)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 2018. She is confident that she will be able
to sell any workstations in her 2018 ending inventory during 2019. However, Santana does not want to
overproduce as she does not have sufficient storage space for many more workstations.
Required
1. Compute Business Solutions’s absorption costing income assuming
a. 300 workstations are produced.
b. 320 workstations are produced.
2. Compute Business Solutions’s 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 Santana use the information from parts 1 and 2 to make production decisions?
