Question

ABC sells its products for $100 each. The current production level is 200,000 units, although only...

ABC sells its products for $100 each. The current production level is 200,000 units, although only 180,000 units are anticipated to be sold.

Unit manufacturing costs are:

Direct materials $40.00

Direct manufacturing labor $20.00

Variable overhead costs $10.00

Total fixed manufacturing costs             $400,000

Marketing expenses $5.00 per unit, plus $100,000 per year

Required:

a. Prepare an income statement using absorption costing.

b. Prepare an income statement using variable costing.

Business   Accounting   
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Answer #1

Income statement under Absorption costing ;

Unit cost under absorption costing = 40+20+10+(400000/200000) = 72 per unit

Sale (180000*100) 18000000
Cost of goods sold (180000*72) -12960000
Gross profit 5040000
Selling and administrative expense -1000000
Net operating income 4040000

Income statement under Variable costing ;

Unit cost under Variable costing = 40+20+10 = 70 per unit

Sale (180000*100) 18000000
Variable Cost of goods sold (180000*70) -12600000
manufacturing margin 5400000
Variable selling and administrative expense -900000
Contribution margin 4500000
Fixed cost -500000
Net operating income 4000000
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