Topple Company produces a single product. Operating data for the company and its

ID: 2354135 • Letter: T

Question

Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below: Units in beginning inventory 0 Units produced 9,000 Units sold 7,000 Sales $100,000 Less cost of goods sold: Beginning inventory 0 Add cost of goods manufactured 54,000 Goods available for sale 54,000 Less ending inventory 12,000 Cost of goods sold 42,000 Gross margin 58,000 Less selling and admin. expenses 28,000 Net operating income $30,000 Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.

Explanation / Answer

variable costing income statement

sales

100000

variable costs

28000

contribution margin

72000

fixed costs:

selling and admin

28,000

fixed factory OH

18,000

total fixed costs

46,000

net income

26,000

Difference between absorption and variable costing is $4,000. This difference is a result of the treatment of the fixed overhead. Under variable, the total amount (18,000) is expensed. Under absorption only the amount associated with the 7,000 units that were sold (14,000) is expensed, which is a difference of $4,000.