Posted: July 6th, 2016

What are the difference between the absorption costing income and the variable costing income for these two years?

b. Variable cost per unit and total fixed costs are unchanged during 2010 and 2011. The company’s $29 per unit product cost consists of the following.

Direct materials $ 4
Direct labor 8
Variable overhead 7
Fixed overhead ($320,000/32,000 units) 10

Total product cost per unit $ 29

c. Selling and administrative expenses consist of the following.

2010 2011
Variable selling and administrative ($2.25 per unit) $ 49,500 $ 94,500
Fixed selling and administrative 245,000 245,000

Total selling and administrative $ 294,500 $ 339,500

1. Prepare income statements for the company for each of its first two years under variable costing.

2. What are the difference between the absorption costing income and the variable costing income for these two years.

3. Safety Chemical produces and sells an ice-­melting granular used on roadways and sidewalks in winter. It annually produces and sells about 100 tons of its granular. In its nine-­year history, the company has never reported a net loss. However, because of this year’s unusually mild winter, projected demand for its product is only 65 tons. Based on its predicted production and sales of 65 tons, the company projects the following income statement (under absorption costing).

Sales (65 tons at $21,000 per ton) $1,365,000
Cost of goods sold (65 tons at $16,000 per ton) 1,040,000