E10-2: Comparative income statements - variable and absorption costings Using th
ID: 2457133 • Letter: E
Question
E10-2: Comparative income statements - variable and absorption costings
Using the information presented in E10-1, prepare a comparative income statements for March (a) under absorption costing and (b) under variable costing.
The following data came from the records for March:
Direct materials................................... $200,000
Direct labor......................................... $100,000
Variable factory overhead.................... $80,000
Fixed factory overhead....................... $60,000
Selling and administrative expenese.... $40,000
Units produced.................................. 25,000
Units sold......................................... 20,000
Selling price per unit.......................... $25
There were no beginning inventories and no ending work in process inventory.
Explanation / Answer
Calculation of unit product cost:
Income statements:
Absorption costing:
Net profit 128,000
Variable costing:
Variable costing and absorption costing usually produce different net operating income figures. The reason is that the fixed manufacturing overhead cost is not treated the same way under two costing methods
Under absorption costing system, the product cost consists of all variable as well as all fixed manufacturing costs i.e., direct materials, direct labor and factory overhead (FOH). But when variable costing system is used, the fixed cost (both manufacturing and non-manufacturing) is treated as a period or capacity cost and is, therefore, not included in the product cost.
Variable costing Absorption costing Direct materials $8 $8 Direct labor $4 $4 Variable manufacturing overhead $3.2 $3.2 Fixed manufacturing overhead — $2.4 ———- ———- production cost per unit $15.2 $17.6 ———- ———-Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.