Question

Income statement under absorption costing and variable costing

Answer 1

Answer:

Results are below.

Explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

1)

First, we need to calculate the unitary fixed manufacturing overhead:

Fixed unitary manufacturing overhead= 504,000 / 42,000= $12

Now, the unitary production cost under the absorption costing method:

Unitary production cost= 60 + 22 + 8 + 12= $102

Finally, the income statement:

Sales= 34,000*140= 4,760,000

COGS= 34,000*102= (3,468,000)

Gross profit= 1,292,000

Total selling and administrative cost= 115,000 + 34,000*12= (523,000)

Net operating income= 769,000

2)

Unitary production cost= 60 + 22 + 8= $90

Now, the income statement:

Sales= 4,760,000

Total variable cost= (90 + 12)*34,000= (3,468,000)

Total contribution margin= 1,292,000

Total fixed overhead= (504,000)

Total selling and administrative cost= (115,000)

Net operating income= 673,000