TCO E) Topple Company produces a single product. Operating data for the company
ID: 2354169 • Letter: T
Question
TCO E) Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below: Units in beginning inventory 2,000 Units produced 9,000 Units sold 10,000 Sales $100,000 Less cost of goods sold: Beginning inventory 12,000 Add cost of goods manufactured 54,000 Goods available for sale 66,000 Less ending inventory 6,000 Cost of goods sold 60,000 Gross margin 40,000 Less selling and admin. expenses 28,000 Net operating income $12,000 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. Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements. (Points : 30)Explanation / Answer
variable costing income statement
sales
100,000
variable costs:
variable manufacturing
40000
variable selling and admin
10000
total variable
50000
contribution margin
50,000
fixed costs:
fixed factory OH
18,000
fixed selling and admin
18,000
total fixed
36,000
net income
14,000
Net income is $2,000 higher under variable than absorption. They sold more than they produced, so more fixed overhead was expensed under absorption than variable. Fixed overhead is expensed under absorption based on what is sold.
variable costing income statement
sales
100,000
variable costs:
variable manufacturing
40000
variable selling and admin
10000
total variable
50000
contribution margin
50,000
fixed costs:
fixed factory OH
18,000
fixed selling and admin
18,000
total fixed
36,000
net income
14,000
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