Question

The American Medical Association Printing Division (AMAPD) produces a standardized medical dictionary and has provided the following data concerning its most recent month of operations:

Selling price	$92
Units in beginning inventory	300
Units produced	5,900
Units sold	6,000
Units in ending inventory	200
Variable costs per unit:
Direct materials	$39
Direct labor	$19
Variable manufacturing overhead	$2
Variable selling and administrative	$11
Fixed costs:
Fixed manufacturing overhead	$88,500
Fixed selling and administrative	$36,000

AMAPD produces the same number of units every month, although the sales in units vary from month to month. Variable costs per unit and total fixed costs have been constant from month to month.

Required:

a. Prepare a contribution format income statement for the month using variable costing.

b. Prepare an income statement for the month using absorption costing.

c. Explain the reason for any difference in net operating income between the two methods.  

Answer 1