ACC403 - Principles of Accounting
Module 2 – Case 2

One of the advantages of the discovery of mathematics is the birth of a systemic way of coming up into a generally accepted prediction based on facts and other factors and/or elements. With a set of rules being followed, this is what is normally called statistics. And in one way or another from it were devised a series of complex mathematical systems that tend to keep records of various activities – mostly business and financial ones.

We will take a look at a certain example and eventually prepare an income statement utilizing the given data. Also in preparing the net income statements, the direct (variable) and full absorption will be considered which according to one of the sources considered here are the traditional methods (Martin, Management Accounting: Concepts, Techniques & Controversial Issues). With the assumptions given in the problem, that (a) costs per unit are the same for units in beginning inventory and units produced during the year; (b) and also, prices and unit costs did not change during the year, we now look at the income statement for this problem.

DIRECT (VARIABLE) COSTING INCOME STATEMENT

With the given 450,000 production capacity plus a selling price of $29.00 per unit and also considering an ending inventory of 55,000 units, we arrive with total ideal sales of 345,000 units or $11,455,000.00.

Figure 1
Direct (Variable) Costing Income Statement
FULL ABSORPTION COSTING INCOME STATEMENT

Figure 2
Full Absorption Costing Income Statement

In these statements, it will be clear that the data are still the same and that the only varying element is on the way the figures are presented in the chart. One of the myths in business is the more products being availably sold in the market the higher the profit. In the case of E-Company, will the decision to increase sales affect