Posted: January 20th, 2016

Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.

The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, 2007. During the accounting period, 17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories.

 

 

 

Sales (17,000 @ $60)                          $1,020,000

 

Cost of goods sold                                   612,000

 

Gross profit $ 408,000

 

Selling and administrative expenses          66,000

 

Income from operations                      $ 342,000

 

 

 

Additional Information:

 

 

 

Cost                                         Total Cost        Number of Units          Unit Cost

 

Manufacturing costs:

 

Variable                                 $442,000         17,000                         $26

 

Fixed                                       170,000         17,000                           10

 

Total                                      $612,000                                             $36

 

 

 

 

 

Selling and administrative expenses:

 

Variable ($2 per unit sold)                            $34,000

 

Fixed                                                               32,000

 

Total                                                              $66,000

 

 

 

 

 

Required

 

Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.

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