Question

Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had...

Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations:

Prior Year Current Year
Sales 1,800 units 2,200 units
Production 2,000 units 2,000 units
Production cost
Factory—variable (per unit) $ 0.60 $ 0.60
—fixed $ 1,000 $ 1,000
Marketing—variable $ 0.40 $ 0.40
Administrative—fixed $ 500 $ 500

Required:

1. Prepare an income statement for each year based on full costing.

2. Prepare an income statement for each year based on variable costing.

3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.

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