1. The document compares the cost per unit and operating income statement under absorption costing and variable costing. Absorption costing includes fixed manufacturing overhead in the cost per unit, while variable costing does not.
2. The operating income statement for the year ended December 31, 20X4 shows operating income of $688,000 under absorption costing, and $640,000 under variable costing.
3. A formula is given to calculate the difference between absorption costing and variable costing operating income when inventory levels change: the change in inventory multiplied by the fixed overhead rate. In this case, a 3,000 unit inventory increase would cause absorption costing operating income to be $48,
1. The document compares the cost per unit and operating income statement under absorption costing and variable costing. Absorption costing includes fixed manufacturing overhead in the cost per unit, while variable costing does not.
2. The operating income statement for the year ended December 31, 20X4 shows operating income of $688,000 under absorption costing, and $640,000 under variable costing.
3. A formula is given to calculate the difference between absorption costing and variable costing operating income when inventory levels change: the change in inventory multiplied by the fixed overhead rate. In this case, a 3,000 unit inventory increase would cause absorption costing operating income to be $48,
1. The document compares the cost per unit and operating income statement under absorption costing and variable costing. Absorption costing includes fixed manufacturing overhead in the cost per unit, while variable costing does not.
2. The operating income statement for the year ended December 31, 20X4 shows operating income of $688,000 under absorption costing, and $640,000 under variable costing.
3. A formula is given to calculate the difference between absorption costing and variable costing operating income when inventory levels change: the change in inventory multiplied by the fixed overhead rate. In this case, a 3,000 unit inventory increase would cause absorption costing operating income to be $48,
1. The document compares the cost per unit and operating income statement under absorption costing and variable costing. Absorption costing includes fixed manufacturing overhead in the cost per unit, while variable costing does not.
2. The operating income statement for the year ended December 31, 20X4 shows operating income of $688,000 under absorption costing, and $640,000 under variable costing.
3. A formula is given to calculate the difference between absorption costing and variable costing operating income when inventory levels change: the change in inventory multiplied by the fixed overhead rate. In this case, a 3,000 unit inventory increase would cause absorption costing operating income to be $48,
Direct material ............................. $40 ....................................................... $40
Direct labor .................................. 22 ....................................................... 22 Manufacturing overhead Variable ..................................... 16 ....................................................... 16 Fixed ($400,000 ÷ 25,000) ........ 16 Total absorption cost per unit .... $94 Total variable cost per unit ............................................................................ $78
2. a. GREAT OUTDOZE, INC.
OPERATING INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 20X4 ABSORPTION COSTING
Sales revenue (at $130 per unit) ..................................................... $2,860,000
Less: Cost of goods sold (at absorption cost of $94 per unit) ................................................... 2,068,000 Gross margin .................................................................................... $ 792,000 Less: Selling and administrative expenses: Variable (at $2 per unit) ....................................................... 44,000 Fixed ..................................................................................... 60,000 Operating income ............................................................................ $ 688,000 b. GREAT OUTDOZE, INC. OPERATING INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 20X4 VARIABLE COSTING
Sales revenue (at $130 per unit) ..................................................... $2,860,000
Less: Variable expenses: Variable manufacturing costs (at variable cost of $78 per unit) ....................................... 1,716,000 Variable selling and administrative costs (at $2 per unit) .................................................................... 44,000 Contribution margin ........................................................................ $1,100,000 Less: Fixed expenses: Fixed manufacturing overhead ........................................... 400,000 Fixed selling and administrative costs .............................. 60,000 Operating income ............................................................................ $ 640,000
3. Change in predetermined absorption-costing income
inventory fixed overhead = minus variable-costing (in units) rate income