Answer:
Results are below.
Explanation:
<u>The absorption costing </u>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.
<u>The variable costing method</u> incorporates all variable production costs (direct material, direct labor, and variable overhead).
<u>Variable costing income statement:</u>
Total unitary variable production cost= (24 + 16 + 2 + 3)= $45
Sales= 73*51,000= 3,723,000
Total variable cost= 51,000*45= (2,295,000)
Contribution margin= 1,428,000
Fixed manufacturing overhead= (784,000)
Fixed selling and administrative expense= (672,000)
Net operating income= (28,000)
<u>Absorption costing income statement:</u>
Unitary production cost= (24 + 16 + 2) + (784,000/56,000)
Unitary production cost= $56
Sales= 73*51,000= 3,723,000
COGS= 51,000*56= (2,856,000)
Gross profit= 867,000
Total selling and administrative= 672,000 + 3*51,000= (825,000)
Net operating income= 42,000
<u>The difference between both methods is the fixed manufacturing overhead allocated in ending inventory.</u>
