Question

Fancy Foot Cat Biscuits Company manufactures cat treats. The company has the

following actual data for January and February 20xx.

                                                                          January                                                                                  February

Beginning inventory in kilograms                          0                                                                                             2,000

Production in kilograms                                   20,000                                                                                        20,000

Sales in kilograms                                          18,000                                                                                         21,000

Variable manufacturing costs per unit produced  $8                                                                                             $8

Variable marketing costs per unit sold                $2                                                                                              $2

Fixed manufacturing costs                            $30,000                                                                                     $30,000

Fixed marketing costs                                    $5,000                                                                                         $5,000

The selling price per kilogram is $20.00. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 20,000 kilograms. There
is no price, efficiency or spending variance. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.

1. Prepare the January and February income statements for Fancy Foot Cat

Biscuits under: a) variable costing and b) absorption costing

2. Prepare a numerical reconciliation and explanation of the difference in the

income each month between variable costing and absorption costing.

Answer 1