Production and nonproduction costs

1. Explain how production and nonproduction costs are treated using absorption costing.

2. Explain how variable and nonvariable costs are treated using the variable costing method.

3. Explain how direct materials and other operating costs are treated using the throughput costing method.

1. Explain the advantages of a product line income report for internal users. Do you think this information would be useful for external users? Why?

2. If a company produces more units than it sells in its first year of operations, which method (absorption, variable, or throughput) reports the highest profit? Why?

Leonard Corporation had assets of $1,000,000 expropriated in another country during 2010 with a resulting extraordinary loss on the expropriation of $600,000. Leonard’s income tax rate is 40 percent.

What is the extraordinary gain (loss) shown on the income statement for 2010? Show your calculations.

Solution:

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