Answer:
1. Income statement for the year
using Absorption Costing
Selling price ( 20,000 x $216 ) $4,320,000
Direct materials ( 20,000 x $20 ) $400,000
Direct labor ( 20,000 x $28 ) $560,000
Variable overhead ( 20,000 x $6 ) $120,000
Fixed overhead <u>$160,000</u>
Total Production Cost <u>($1,240,000)</u>
Gross Profit $3,080,000
Selling and Admin Expenses
Variable Cost ( 20,000 x $18) $360,000
Fixed Cost <u>$200,000</u>
Total Period Cost <u>($560,000)</u>
Operating Income <u>$2,520,000</u>
2. Income statement for the year
using Variable Costing
Selling price ( 20,000 x $216 ) $4,320,000
Direct materials ( 20,000 x $20 ) $400,000
Direct labor ( 20,000 x $28 ) $560,000
Variable overhead ( 20,000 x $6 ) $120,000
Variable Cost S&A ( 20,000 x $18) $360,000
Variable Production Cost <u>($1,440,000)</u>
Contribution Margin $2,880,000
Fixed Cost
Production overhead cost $160,000
Fixed Cost S&A <u>$200,000</u>
<u>($360,000)</u>
Operating Income <u>$2,520,000</u>
Explanation:
Variable and absorption costing income statement have difference of treatment of Variable and Fixed costs as production cost and period cost.
Variable costing consider all variable costs as production cost and Absorption costing consider all the cost incurred in production either variable or fixed as production cost.
