During 2016, Rafael Corp. produced 52,800 units and sold 42,240 for $16 per unit

Question

During 2016, Rafael Corp. produced 52,800 units and sold 42,240 for $16 per unit. Variable manufacturing costs were $6 per unit. Annual fixed manufacturing overhead was $84,480 ($2 per unit). Variable selling and administrative costs were $2 per unit sold, and fixed selling and administrative expenses were $19,100. Prepare an absorption-costing income statement. Rafael Corp. Income Statement-Absorption Costing For the Year Ended December 3i.2016 Reconcile the difference between the net income under variable costing and the net income under absorption costing. That is, show a calculation that explains what causes the difference in net income between the two approaches Variable costing net income Fixed manufacturing overhead costs deferred in ending inventory Absorption costing operating income

Explanation / Answer

unit product cost under absorption costing is $ Variable manufacturing cost per unit 6 Fixed manufacturing overhead per unit (84480/52800) 1.6 unit product cost under Absorption costing 7.6 Income Statement-Absorption costing Sales (42,240*16)= 675840 Cost of goods sold Beginning inventory 0 Add: cost of goods manufacured (52,800*7.6) 401280 cost of goods available for sale 401280 less:Ending inventory (10,560*7.6) 80256 321024 Gross profit 354816 less:Selling and administrative expense (42,240*2+19,100) 103580 Operating income before tax 251236 Variable costing net income 234340 fixed MOH costs deferred in ending inventory (10560*1.6) 16896 Absorption costing operating income 251236 Variable costing sales 675840 less: cost of goods sold (42,240*6) 253440          variable selling and adm expense (42240*2) 84480 Contribution margin 337920 less:Selling and adm exp   103580 operating income 234340

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