Question

Diaz Company reports the following variable costing income statement for its single product. This company’s sales totaled 51,000 units, but its production was 81,000 units. It had no beginning finished goods inventory for the current period.

DIAZ COMPANY Income Statement (Variable Costing)
Sales (51,000 units × $61.00 per unit)	$	3,111,000
Variable expenses
Variable manufacturing expense (51,000 units × $28.10 per unit)		1,433,100
Variable selling and admin. expense (51,000 units × $5.10 per unit)		260,100
Total variable expenses		1,693,200
Contribution margin		1,417,800
Fixed expenses
Fixed overhead		332,100
Fixed selling and administrative expense		166,050
Total fixed expenses		498,150
Net income	$	919,650

  
1. Convert Diaz's variable costing income statement to an absorption costing income statement.
2. Fill in the blanks:
The dollar difference in variable costing income and absorption costing income=

Answer 1

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	Diaz Company
1)	Net Operating Income under Absorption Costing
	Sales Units	51000
	Sales Revenue(51000*$61)=(A)	$     31,11,000.00
	Variable Manufacturing Expenses(51000*28.10)	$     14,33,100.00
	Fixed Manufacturing Expenses=($332100/81000)*51000	$        2,09,100.00
	Total Cost of goods sold=(B)	$     16,42,200.00
	Gross Margin=(C )=(A)-(B)	$     14,68,800.00
	Less: Variable Selling and Administrative Expenses=(D )	$        2,60,100.00
	Less: Fixed Selling and Administrative Expenses(51000*$5.10)=(E )	$        1,66,050.00
	Net Operating Income=(C )-(D )-(E )	$     10,42,650.00
	Fixed Manufacturing cost pet unit=($332100/81000)	4.1
	Units in Beginning Inventory	0
	Units Produced during the month	81000
	Units sold during the year	51000
	Closing Inventory	30000
	Difference arises in Variable and Absorption Costing Method due to fixed Manufacturing Overhead cost deferred in Inventory
	Year
	Variable Costing Net Operating Profit	$        9,19,650.00
	Add: Fixed Manufacturing Overhead cost deferred in Inventory(30000*$4.10)	$        1,23,000.00
	Net Operating Income under Absoption costing	$     10,42,650.00
2)	Dollar difference in variable costing and Absorption costing net operating income due to Fixed Manufacturing Overhead deferred in Inventory	$        1,23,000.00