Question

Consider the following information for Presidio Inc.'s most recent year of operations. Additional information for Presidio’s most recent year of operations follows: Number of units produced 2,900 Number of units sold 1,750 Unit sales price $ 680.00 Direct materials per unit 55.00 Direct labor per unit 85.00 Variable manufacturing overhead per unit 35.00 Fixed manufacturing overhead per unit ($343,360 ÷ 2,900 units) 118.40 Total variable selling expenses ($13 per unit sold) 22,750.00 Total fixed general and administrative expenses 79,000.00 Required: 2. Complete a full absorption costing income statement and a variable costing income statement for Presidio. Assume there was no beginning inventory. 3. Compute the difference in profit between full absorption costing and variable costing.

Answer 1

2. Absorption costing income statement:

Particulars	Amount $	Amount $
Sales (1,750*680)		1,190,000
Less: cost of goods sold manyfactured (2,900*293.4)	850,860
Cost of goods sold available for sale	850,860
Less: Ending inventory (1,150*293.4) (2900 - 1750)	337,410	513,450
Gross profit		676,550
Less: Selling and administrative expenses
Fixed	79,000
Variable	22,750	101,750
Net operating income		574,800

Working Note:

Cost per unit = Direct material per unit + Direct labor per unit + Variable manufacturing overhead per unit + fixed manufacturing overhead per unit

= 55 + 85 + 35 + 118.40 = $293.40

Variable costing income statement:

Particulrs	Amount $	Amount $
Sales (1,750*680)		1,190,000
Less: Cost of goods sold manufactured (2,900* 175)	507,500
Cost of goods sold available for sale	507,500
Less: Ending inventory ( 1,150*175) (2900-1750)	201,250	306,250
Gross profit		883,750
Less: Variable selling and administrative expenses		22,750
Contribution margin		861,000
Less: Fixed manufacturing overhead	343,360
Fixed general and administrative expenses	79,000	422,360
Net operating income		438,640

Working Note-

Cost per unit = Direct material per unit + Direct labor per unit + variable manufacturing overhead per unit

= 55 + 85 + 35 = $175

3. The difference in profit between full absorption costing and variable costing:

Particulars	Amount $
Net operating income under absorption costing	574,800
Net operating income under variable costing	438,640
	136,160