Question

Diaz Company reports the following variable costing income statement for its single product. This company’s sales totaled 48,000 units, but its production was 78,000 units. It had no beginning finished goods inventory for the current period. DIAZ COMPANY Income Statement (Variable Costing) Sales (48,000 units × $58.00 per unit) $ 2,784,000 Variable expenses Variable manufacturing expense (48,000 units × $27.80 per unit) 1,334,400 Variable selling and admin. expense (48,000 units × $4.80 per unit) 230,400 Total variable expenses 1,564,800 Contribution margin 1,219,200 Fixed expenses Fixed overhead 296,400 Fixed selling and administrative expense 148,200 Total fixed expenses 444,600 Net income $ 774,600 1. Convert Diaz's variable costing income statement to an absorption costing income statement. 2. Fill in the blanks:

Answer 1

	Absorption Costing Income Statement
	Sales		(48000 units x $ 58)		$ 2,784,000.00
Less:	Cost of Goods sold		(48000 units x $ 31.60)		$ 1,516,800.00
	Gross Margin				$ 1,267,200.00
Less:	Selling and Adm. Expenses
	Variable		(48000 units x $ 4.80)		$    230,400.00
	Fixed				$    148,200.00
	Total Selling and Adm. Expenses				$    378,600.00
	Net Operating Income				$    888,600.00

Computation of product cost per unit under absorption costing
Variable Manu. Expenses			$     27.80
Fixed Manu. OH			$       3.80	($ 296400 / 78000)
			$     31.60