Answer:
Instructions are below.
Explanation:
Giving the following information:
Number of Gallons Produced 80,000
Number of Gallons Sold 70,000
Sales Price $3.00/gallon
Unit Product Cost (variable costing) $1.45/gallon
Contribution Margin $84,000
Total Fixed Manufacturing Overhead $?
Total Fixed Selling & Administrative $25,000
Variable Selling & Administrative $?Total Fixed Selling & Administrative $25,000
Variable Selling & Administrative $?
Inventory value under absorption costing $29,500
T<u>he difference between the absorption and variable costing method is that the first one includes the fixed manufacturing overhead in the product cost.</u>
Absorption= direct material + direct labor + total unitary overhead
Variable= direct material + direct labor + unitary variable overhead
First, we will calculate all the missing information:
Sales= 3*70,000= 210,000
Total variable cost= 210,000 - 84,000= 126,000
Unitary varaible cost= 126,000/70,000= $1.8 per unit
Unitary variable selling and administrative= 1.8 - 1.45= 0.35
Unitary inventory production cost (absorption)= 29,500/10,000= $2.95
Unitary fixed manufacturing cost= 2.95 - 1.45= 1.5
Now, we can determine the income statement under absorption and variable costing method:
A<u>bsorption costing:</u>
Sales= 210,000
COGS= 70,000*2.95= (206,500)
Gross profit= 3,500
Total Fixed Selling & Administrative= (25,000)
Variable Selling & Administrative= (0.35*70,000)=
Net operating income= (46,000)
<u>Variable costing method:</u>
Sales= 210,000
Total variable cost= (126,000)
Contribution margin= 84,000
Total Fixed Selling & Administrative= (25,000)
Total fixed manufacturing overhead= (80,000*1.5)= (120,000)
Net operating income= (61,000)
