Question

Hanks Corporation produces a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below: Yearl Year 2 Units in beginning inventory 0 1,000 Units produced 9,000 9,000 Units sold 8,000 10,000 Year 1 Year 2 Sales $80,000 $100,000 Cost of goods sold 48 000 60 000 Gross margin 32,000 40,000 Selling and administrative expenses 28 000 30 000 Net operating income $4,000 $10,000 Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead was $18,000 in each year. This fixed manufacturing overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required: a. Compute the unit product cost in each year under variable costing. b. Prepare new income statements for each year using variable costing. c. Reconcile the absorption costing and variable costing net operating income for each year.

Answer 1