(TCO E) The following absorption costing income statement and additional data ar

Question

(TCO E) The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, XXXX. During the accounting period,17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories. Bernon Co. Absorption Costing Income Statement for the Month Ended May 31, XXXX Sales (17,000 @ $60) $1,020,000 Cost of goods sold 612,000 Gross profit $ 408,000 Selling and administrative expenses 66,000 Income from operations $ 342,000 Additional Information: Cost Total Cost Number of Units Unit Cost Manufacturing costs: Variable $442,000 17,000 $26 Fixed 170,000 17,000 10 Total $612,000 $36 Selling and administrative expenses: Variable ($2 per unit sold) $34,000 Fixed 32,000 Total $66,000 Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.

Explanation / Answer

Varaiable costing Income Statement Sales (17,000 @ $60) 10,20,000 Cost of goods sold 4,76,000 Gross profit 5,44,000 Fixed Cost Manufacturing Cost 170000 Selling and Admin 32000 Income From operation 3,42,000 Absorption costing is the costing technique whereby all manufacturing costs are included in the cost of goods sold. However, under variable costing only variable costs are included in the cost of goods sold. The major difference, in income, between the two formats, would occur if the company sold a quantity that is lower than the amount manufactured

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