During 2005 Rafael Corp produced 40,000 units and sold 30,000 units for $12 per

Question

During 2005 Rafael Corp produced 40,000 units and sold 30,000 units for $12 per unit. Variable manufacturing costs were $4 per unit. Annual fixed manufacturing overhead was $80,000 ($2 per unit). Variable selling and administrative costs were $1 per unit sold, and fixed selling and administrative expenses were $10,000. Prepare an absorption costing income statement and reconcile the difference between net income under variable costing and net income under absorption costing. that is, show a calculation that explains what causes the difference in net income between the two approaches

Explanation / Answer

Unit cost under asorption costing = 4 + 2 = 6

Income statement under Absorption costing :

Income statement under Variable costing:

reconcile :

Net income as per variable costing                120000

Add:Fixed overhead deferred in ending inventory   20000                                     [(40000-30000=10000 *2 ]

Net income as per absorption costing               140000

Sales    [30000*12] 360000 Less:cost of goods sold   [6*30000] - 180000 Gross margin 180000 Less:Period cost   Variable selling   [1*30000] -30000 Fixed selling -10000 Net income 140000

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