can you please help me with 2band part 3, reconcile the difference between varia
ID: 2588854 • Letter: C
Question
can you please help me with 2band part 3, reconcile the difference between variable costing and absorption costing net operating income in year 1 and 2. thanks
manufactures and sells one product The folowing pertaes to each of the Variable costs per unit Direct materials Direct labor Variable manufacturing overhead 5 29 17 s 4 53 Vaniable seling and administrative Fixed costs per year Fised manufacturing overhead 240 000 Fixed seling and administrative expenses $ 80.000 During ts frst year of operations Waish produced 50.000 units and sold 40 000 units During ts second year of operations t produced 40.000 unts and sold 50.000 units The selling price of the companys product i 551 per unt Required 1 Assume the company uses variable costingExplanation / Answer
2b. Income Statement under absorption costing:
Income Statement under Absorption Costing
Year 1
Year 2
Sales in units
40,000
50,000
sales @51 per unit
$2,040,000
$2,550,000
Beginning inventory
$0
$548,000
Add: Cost of goods manufactured
$2,740,000
$2,240,000
Cost of goods available for sale
$2,740,000
$2,788,000
Less: closing inventory
$548,000
$0
$2,192,000
$2,788,000
Gross Profit
($152,000)
($238,000)
Less: marketing and administrative expenses:
variable overhead @$3 per unit
$120,000
$150,000
Fixed overhead
$80,000
$80,000
Net Income
($352,000)
($468,000)
Cost of goods manufactured for year 1 = $54.80 x 50,000 = $2,740,000
Cost of goods manufactured for year 2 = $56 x 40,000 = $2,240,000
Year 1
Year 2
Variable costing net operating income/(loss)
($400,000)
($420,000)
Add: fixed manufacturing overhead deferred in inventory (10,000 x $4.80)
$48,000
Less: fixed manufacturing overhead released from inventory (10,000 x $4.80)
$48,000
Absorption costing net operating income/(loss)
($352,000)
($468,000)
Income Statement under Absorption Costing
Year 1
Year 2
Sales in units
40,000
50,000
sales @51 per unit
$2,040,000
$2,550,000
Beginning inventory
$0
$548,000
Add: Cost of goods manufactured
$2,740,000
$2,240,000
Cost of goods available for sale
$2,740,000
$2,788,000
Less: closing inventory
$548,000
$0
$2,192,000
$2,788,000
Gross Profit
($152,000)
($238,000)
Less: marketing and administrative expenses:
variable overhead @$3 per unit
$120,000
$150,000
Fixed overhead
$80,000
$80,000
Net Income
($352,000)
($468,000)
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