Answer:
Part 1. Prepare an income statement for the year using absorption costing
Sales ($225×29,000) 6,525,000
<u>Less Cost of Sales</u>
Opening Stock 0
Add Cost of Manufactured Goods ($95.83×29,000) 2,842,000
Less Closing Stock 0 2,842,000
Gross Profit 3,683,000
<u>Less Expenses</u>
Selling and Administrative Expenses:
Variable ($27×29,000) 783,000
Fixed 493,000 218,000
Net Income 2,682,000
Part 2. Prepare an income statement for the year using variable costing
Sales ($225×29,000) 6,525,000
<u>Less Cost of Sales</u>
Opening Stock 0
Add Cost of Manufactured Goods ($81.00×29,000) 2,349,000
Less Closing Stock 0 2,349,000
Contribution 4,176,000
<u>Less Expenses</u>
Fixed Manufacturing Costs 493,000
Selling and Administrative Expenses:
Variable ($27×29,000) 783,000
Fixed 493,000 218,000
Net Income 2,682,000
Explanation:
Part 1. Prepare an income statement for the year using absorption costing
Absorption Costing, also known as Full Costing includes Fixed Manufacturing as part of Product Cost.
All Non - Manufacturing Costs are then Presented as Period Costs
Product Cost Per Unit:
Direct materials 29.00
Direct labor 37.00
Variable overhead 15.00
Fixed Overhead 430000/29000 14.83
Total Product Cost 95.83
Part 2. Prepare an income statement for the year using variable costing
Variable Costing, also known as Marginal Costing only includes Variable Manufacturing Costs as part of Product Costs
Fixed Manufacturing and All Non - Manufacturing Costs are then Presented as Period Costs.
Product Cost Per Unit:
Direct materials 29.00
Direct labor 37.00
Variable overhead 15.00
Total Product Cost 81.00
