Varilux manufactures a single product and sells it or $10 per unit. At the begin
ID: 2435256 • Letter: V
Question
Varilux manufactures a single product and sells it or $10 per unit. At the beginning of the year, there were 1,000 units in inventory. Upon further investigation, you discover that units produced last year had $3 of fixed manufactuing costs and $2 of variable manufacturing costs. During the year, Varilux produced 10,000 units of product. Each unit produced generated $3 of variable manufacturing cost. Total fixed manufacturing cost for the current year was $40,000. Selling and administrative costs consisted of $12,000 of variable costs and $18,000 of fixed costs. There were no inventories at the end of the year.I need to income statements for the current year: one on a variable cost basis and the other on an absorption cost basis. Explain any difference between the two net income numbers and provide calculations supporting your explanation of the difference.
Explanation / Answer
variable cost income statement
sales
110000
(11000*10)
variable costs:
variable manufacturing
32000
(1000*2 + 10000*3)
variable selling and admin
12000
total variable
44000
contribution margin
66000
fixed costs:
fixed manufacturing
40000
fixed selling and admin
18000
total fixed
58000
net income
8000
absorpbtion cost income statement
sales
110000
(11000*10)
cost of goods sold:
variable manufacturing
32000
(1000*2 + 10000*3)
fixed manufacturing
43000
(1000*3+40000)
total cost of goods sold
75000
gross margin
35000
selling and admin:
variable selling and admin
12000
fixed selling and admin
18000
total selling and admin
30000
net income
5000
reconciliation between variable and absorption
variable net income
8000
fixed costs expensed under variable the previous yet
3000
(1000*3)
fixed net income
5000
The difference in net income between variable and absorption is $3,000. This difference is because under variable costing, the fixed manufacturing costs of $3 per unit for the 1,000 units produced in the previous year but sold in the current year were expensed in the previous year. Under absorption it was expensed in the current year.
variable cost income statement
sales
110000
(11000*10)
variable costs:
variable manufacturing
32000
(1000*2 + 10000*3)
variable selling and admin
12000
total variable
44000
contribution margin
66000
fixed costs:
fixed manufacturing
40000
fixed selling and admin
18000
total fixed
58000
net income
8000
absorpbtion cost income statement
sales
110000
(11000*10)
cost of goods sold:
variable manufacturing
32000
(1000*2 + 10000*3)
fixed manufacturing
43000
(1000*3+40000)
total cost of goods sold
75000
gross margin
35000
selling and admin:
variable selling and admin
12000
fixed selling and admin
18000
total selling and admin
30000
net income
5000
reconciliation between variable and absorption
variable net income
8000
fixed costs expensed under variable the previous yet
3000
(1000*3)
fixed net income
5000
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.