The following information pertains to Chacon Inc. for last year: * Fixed overhea

Question

The following information pertains to Chacon Inc. for last year:

* Fixed overhead totals $78,210 per year.

Assume that the selling price is $28 per unit.

1. Calculate operating income using absorption costing. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your income statement.

2. Calculate operating income using variable costing. Refer to the list of Labels and Amount Descriptions for the exact wording of text items within your income statement.

Beginning inventory in units 4,900 Units produced 19,800 Units sold 23,500 Costs per unit: Direct materials $8.30 Direct labor $3.70 Variable overhead $1.20 Fixed overhead* $3.95 Variable selling expenses $2.60 Fixed selling and administrative expenses $23,600

Explanation / Answer

Chacon Inc. All Amounts in $ 1. Income Statement using Absorption Costing Sales 658000 Less : Cost of Goods Sold Variable Costs Direct Materials 195050 Direct Labor 86950 Variable Overheads 28200 *** Fixed Overheads 92825 403025 Contribution Margin 254975 Less : Selling and Administrative Exp ($ 2.60 X 23,500 + $ 23,600) 84700 Operating Income 170275 *** Fixed Overheads per unit = $ 78,210 / 19,800 units produced = 3.95 $ per unit 2. Income Statement using Variable Costing Sales 658000 Less : Cost of Goods Sold Variable Costs Direct Materials 195050 Direct Labor 86950 Variable Overheads 28200 Variable Selling and Admin Exp 61100 371300 Contribution Margin 286700 Less : Fixed Costs Fixed Overheads 78210 Fixed Selling and Admin Exp 23600 101810 Operating Income 184890

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