Answer:
Absorption Costing Net Income 1008,000
Variable Costing Net Income 976,000
Explanation:
<u><em>Kodiak Fridgeration Company</em></u>
Units Produced = 80,000
Units Sold = 72,000
Ending Inventory = 8000
<u>Per Units Cost </u>
Direct materials $6,400,000/80,000 = $ 80
Direct labor 1,600,000 /80,000= $ 20
Variable manufacturing cost 1,280,000/80,000= $ 16
Fixed manufacturing cost 320,000 /80,000 = $ 4
Absorption Manufacturing Cost per unit= 9,600,000/80,000= $ 120
Variable Manufacturing Costs per unit = $ 116
<u><em></em></u>
<u><em>Kodiak Fridgeration Company</em></u>
<u><em>Income Statement </em></u>
<u><em>Absorption Costing</em></u>
<u>Sales $10,800,000 </u>
Manufacturing costs:
Direct materials $6,400,000
Direct labor 1,600,000
Variable manufacturing cost 1,280,000
Fixed manufacturing cost 320,000 9,600,000
Less Ending Inventory (8000*120) (960,000)
<u>Cost of Goods Sold 86,40,000</u>
Gross Profit 2160,000
Selling and administrative expenses:
Variable $ 72,000* 13.5= 972,000
Fixed 180,000
Net Income 1008,000
<em><u>Kodiak Fridgeration Company</u></em>
<em><u>Income Statement </u></em>
<em><u>Variable Costing</u></em>
Sales $10,800,000
Variable manufacturing cost
(80,000*116) 9280,000
Less Ending Inventory ( 8000*116) 928,000
<u>Cost of Goods Sold 83,52,000</u>
Gross Contribution Margin 2448,000
Variable Selling and administrative expenses
(72000 * $1,080,000/80,000) 972,000
Contribution Margin 1476,000
Less Fixed Expenses
Fixed manufacturing cost 320,000
Fixed 180,000 500,000
Net Income 976,000
3. The difference in absorption and variable costing income is because in absorption costing the fixed costs are treated as unit cost and in variable costs the fixed costs are treated as period costs. Also the fixed costs of the ending units is deducted in absorption costing where it is not deducted in variable costing.
