Question

Income Statements under Absorption Costing and Variable Costing

Answer 1

The Income Statements under Absorption Costing and Variable Costing are as follows:

                                                       Absorption Costing     Variable Costing

Sales (19,500 units)                              $2,145,000               $2,145,000

Cost of goods sold                                $1,491,750               $1,365,000

Gross profit                                            $653,250                 $780,000

Selling and administrative expenses:

Fixed factory overhead                                          $162,500

Variable selling and

 administrative expenses    $296,400                  296,400

Fixed selling and

 administrative expenses       114,800    411,200    114,800   573,700

Net Income                                          $242,050                $206,300

What is the difference between Absorption Costing and Variable Costing?

The difference between Absorption Costing and Variable Costing is that the Ending Inventory costs under Variable Costing include only direct materials, direct labor, and variable factory overhead.  Absorption Costing includes all the variable factory costs plus fixed factory overhead (a period cost) in the Ending Inventory costs.

Data and Calculations under Absorption Costing:

Sales (19,500 units)                              $2,145,000

Production costs (25,000 units):

Direct materials                $1,017,500

Direct labor                          487,500

Variable factory overhead 245,000

Fixed factory overhead       162,500

Total production costs      1,912,500

Cost per unit = $76.50 ($1,912,500/25,000)

Less Ending inventory        420,750               (5,500 x $76.50)

Cost of goods sold                              $1,491,750

Gross profit

Selling and administrative expenses:

Variable selling and administrative expenses $296,400

Fixed selling and administrative expenses 114,800 411,200

Data and Calculations under Variable Costing:

Sales (19,500 units)                              $2,145,000

Production costs (25,000 units):

Direct materials                $1,017,500

Direct labor                          487,500

Variable factory overhead 245,000

Total variable production costs  1,750,000

Cost per unit = $70 ($1,750,000/25,000)

Less Ending inventory       385,000               (5,500 x $70)

Cost of goods sold                              $1,365,000

Gross profit

Selling and administrative expenses:

Variable selling and

administrative expenses $296,400

Fixed factory overhead       162,500

Fixed selling and administrative expenses 114,800 411,200

Learn more about absorption costing and variable costing at brainly.com/question/6337340

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