Question

Income Statements, Variable and Absorption Costing

The following information pertains to Vladamir, Inc., for last year:

Beginning inventory, units		1,500
Units produced		100,000
Units sold		101,000
Variable costs per unit:
Direct materials		$8.00
Direct labor		$10.00
Variable overhead		$2.00
Variable selling expenses		$2.00
Fixed costs per year:
Fixed overhead		$200,000
Fixed selling and administrative expenses		$240,000

There are no work-in-process inventories. Normal activity is 100,000 units. Expected and actual overhead costs are the same. Costs have not changed from one year to the next.

Required:

1. How many units are in ending inventory?

2. Without preparing an income statement, indicate what the difference will be between variable-costing income and absorption-costing income.

Assume the selling price per unit is $32. Prepare an income statement using variable costing.

Vladamir, Inc.
Variable-Costing Income Statement
For Last Year
Sales
Less:
Variable cost of goods sold
Variable selling expenses
Contribution margin
Less:
Fixed overhead
Fixed selling and administrative expenses
Operating income

3b. Assume the selling price per unit is $32. Prepare an income statement using absorption costing.

Vladamir, Inc.
Absorption-Costing Income Statement
For Last Year
Sales
Less: Cost of goods sold
Gross profit
Less: Selling and administrative expenses
Operating income

Answer 1