Question

Kylie Company has beginning inventory of 0 units. In 2019 Kylie Company planned to produce 21,000 units and produced 21,000 units. Unit selling price was $900. Variable manufacturing overhead was $25 per unit. Fixed manufacturing costs were $100,000 and fixed marketing costs were $618,000. Variable marketing costs of $300 per unit sold. Kylie had 0 units left in ending inventory. Direct material and direct labor costs were $300 and $200 per unit, respectively. Kylie Company has a tax rate of 40%. All variances are written off to COGS, the allocation base for fixed costs is planned units of production, and current year’s budgeted per unit production cost is the same as prior year’s per unit production cost.

Q26-A	What is the difference in net income between variable and absorption costing?
Q26-B	What is the difference in revenue between variable and absorption costing?
Q26-C	What is Income Tax Expense under Variable Costing ?
Q26-D	What is Variance Adjustment under Absorption Costing ?
Q26-E	What is Net Income under Absorption Costing ?

Answer 1

Q26-A	There won't be any difference in the net income between variable costing and absorption costing
Q26-B	There won't be any difference in the revenue between variable costing and absorption costing
Q26-C	$ 342,800.00	(W.N)
Q26-D	There won't be any variance
Q26-E	Net Income under Absorption Costing = Net Income under Variable Costing = $ 514200								(W.N)

W.N
	Variable Costing Income Statement
	Sales		(21000 units x $ 900)			$ 18,900,000.00
Less:	Variable Costs
	Direct Material		(21000 units x $ 300)		$ 6,300,000.00
	Direct Labor		(21000 units x $ 200)		$ 4,200,000.00
	Variable Manu. OH		(21000 units x $ 25)		$    525,000.00
	Variable Mkt. Costs		(21000 units x $ 300)		$ 6,300,000.00
	Total Variable Costs					$ 17,325,000.00
	Contribution Margin					$   1,575,000.00
Less:	Fixed Costs
	Fixed Manu. Costs				$    100,000.00
	Fixed Mkt. Costs				$    618,000.00
	Total Fixed Costs					$      718,000.00
	Income before Tax					$      857,000.00
Less:	Income Tax @ 40%					$      342,800.00
	Net Income					$      514,200.00