Answer Happy

Basic Fitness manufactures exercise bikes for residentialcustomers. Bikes are sold in sports stores around the country. JohnFraser, the marketing manager, and Susan Goodyear, companypresident, are considering expanding customer base in the secondyear of operations to include department stores. Year 1 price tosports stores is $450 per bike. Year 2 selling price will be $400per bike. Year 1 production was 3,200 bikes and sales were 3,200bikes. As a result of additional sales in year 2 production isexpected to be 5,000 bikes but due to uncertainty about departmentstore sales, sales are expected to be 4,500. Current CostsManufacturing costs: Variable cost per unit Direct materials $50.25Direct labour $62.35 Variable overhead $12.40 Fixed manufacturingcost $80,000 Selling costs: Variable 20% of sales Fixed $60,000Projected cost for year 2 Manufacturing costs: Variable cost perunit Direct materials $55.75 Direct labour $65.45 Variable overhead$13.80 Fixed manufacturing cost $120,000 Selling costs: Variable20% of sales Fixed $80,000 5 Required: 1. Compute the unit cost ofbikes in year 1 using variable costing. 2. Compute the unit cost ofbikes in year 1 using absorption costing. 3. Prepare incomestatement for year 1 using variable costing. 4. Prepare incomestatement for year 1 using absorption costing. 5. Compute the unitcost of bikes in year 2 using variable costing. 6. Compute the unitcost of bikes in year 2 using absorption costing. 7. Prepareprojected income statement for year 2 using variable costing. 8.Prepare projected income statement for year 2 using absorptioncosting. 9. Compute the cost of ending inventory in year 2 usingvariable costing. 10. Compute the cost of ending inventory in year2 using absorption costing. 11. Explain to John and Susan why netincome computed for year 1 using variable costing and absorptioncost for year 1 are the same. 12. Explain to John and Susan why netincome computed for year 2 using variable costing and absorptioncoting for year 2 are different