Answer:
1. Prepare an income statement for the year using variable costing.
Sales ( $ 350 × 70,000) $ 24,500,000
<em>Less </em>Cost of Sales $9,100,000
Opening Stock of Finished Goods 0
Add Manufacturing Cost of Finished Goods( $130 ×100,000) $13,000,000
Less Closing Stock of Finished Goods ($130×30,000) ($3,900,000)
Contribution $15,400,000
Less Expenses
Fixed Manufacturing Overheads ($ 7,000,000)
Selling and administrative costs:
Variable ($ 770,000)
Fixed ($4,250,000)
Net Income $3,380,000
2. Prepare an income statement for the year using absorption costing.
Sales ( $ 350 × 70,000) $ 24,500,000
<em>Less </em>Cost of Sales $14,000,000
Opening Stock of Finished Goods 0
Add Manufacturing Cost of Finished Goods( $200 ×100,000) $20,000,000
Less Closing Stock of Finished Goods ($200×30,000) ($6,000,000)
Gross Profit $10,500,000
Less Expenses
Selling and administrative costs:
Variable ($ 770,000)
Fixed ($4,250,000)
Net Income $5,480,000
3. Under what circumstance(s) is reported income identical under both absorption costing and variable costing
When Production is Equal to Sales
Explanation:
The Variable Costing and The Absorption Costing Differ in two aspects. That is the Accumulation of Product Costs and the Accumulation of Period Costs.
<u>Product Costs</u>
Variable Costing = Direct Labor + Direct Materials + Variable Overheads
= $ 60 + $40 + $ 30
= $130
Absorption Costing = Direct Labor + Direct Materials + Variable Overheads + <em>Fixed Manufacturing Overheads</em>
<em> = </em>$ 60 + $40 + $ 30 + $70
= $200
<u>Periodic Cost</u>
Variable Costing = <em>Fixed Manufacturing Overheads + </em>Non- Manufacturing Overheads
Absorption Costing = <em> </em>Non- Manufacturing Overheads
<u>Units of Closing Stock Calculation :</u>
Production - Sales
100,000-70,000
30,000
