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The Zippo controller provides you the following information for the past year: 200,000 units were sold...

The Zippo controller provides you the following information for the past year:

  • 200,000 units were sold at an average price of $27 per unit
  • 12,000 units were in beginning finished goods inventory and 24,000 units in ending finished goods inventory
  • Variable manufacturing costs during the year are $13 per unit produced
  • Variable marketing costs during the year are $4 per unit sold
  • Fixed costs consist of $520,000 for manufacturing and $360,000 for SG&A
  • All cost information during the year is the same as last year

Using the above information and assuming the fixed manufacturing cost allocation rate is $2.50 per unit, prepare an income statement using absorption accounting.

What is the operating income under variable costing? Provide a reconciliation with operating income under absorption costing.

* Please step-by-step

Thank you

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Zippo controller
Workings for absorption costing Units Note
Units sold           200,000.00
Add: Ending Inventory             24,000.00
Less: Opening Inventory            (12,000.00)
Units produced           212,000.00 A
Answer c Amount $
Fixed manufacturing cost allocation rate                       2.50
Add: Variable manufacturing costs per unit                     13.00
Total manufacturing costs per unit                     15.50 B
Units produced           212,000.00 See A
Cost of goods manufactured       3,286,000.00 D=B*A
Ending Inventory             24,000.00 E
Cost of Ending Inventory           372,000.00 F=E*B
Opening Inventory             12,000.00 G
Cost of Opening Inventory           186,000.00 H=G*B
Units sold           200,000.00 I
Sell price per unit                     27.00 J
Sales       5,400,000.00 K=I*J
Variable marketing costs per unit                       4.00 L
Variable marketing costs           800,000.00 M=L*I
Fixed manufacturing cost allocation rate                       2.50 N
Units produced           212,000.00 See A
Fixed manufacturing cost allocated           530,000.00 C=N*A
Less: Actual Fixed costs           520,000.00
Over applied fixed cost             10,000.00 O
Absorption costing income statement Amount $ Amount $ Note
Sales        5,400,000.00 See K
Less: Costs of goods sold
Cost of Opening Inventory           186,000.00 See H
Add: Cost of goods manufactured        3,286,000.00 See D
Cost of goods available for sale       3,472,000.00
Less: Cost of ending Inventory           372,000.00 See F
Costs of goods sold       3,100,000.00
Less: Over applied fixed cost             10,000.00 See O
Adjusted Costs of goods sold       3,090,000.00
Gross Profit       2,310,000.00
Less: Selling and admin expense
Variable marketing costs           800,000.00 See M
Fixed Selling and admin expense           360,000.00        1,160,000.00
Operating Income       1,150,000.00
Workings for Variable costing Amount $ Note
Variable manufacturing costs per unit                     13.00 P
Ending Inventory             24,000.00 See E
Cost of Ending Inventory           312,000.00 Q=P*E
Units produced           212,000.00 See A
Cost of goods manufactured       2,756,000.00 R=P*A
Opening Inventory             12,000.00 See G
Cost of Opening Inventory           156,000.00 S=P*G
Variable costing income statement Amount $ Amount $ Note
Sales        5,400,000.00 See K
Less: Variable costs of goods sold
Cost of Opening Inventory           156,000.00 See S
Add: Cost of goods manufactured        2,756,000.00 See R
Cost of goods available for sale       2,912,000.00
Less: Cost of ending Inventory           312,000.00 See Q
Costs of goods sold  &nb

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