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Absorption and Variable Costing Calculations

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.

Bernon Co.
Absorption Costing Income Statement
for the Month Ended May 31, 2007

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

Cost of goods sold : 612,000

Gross profit : $ 408,000

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Selling and administrative expenses 66,000

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Income from operations $ 342,000

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Manufacturing costs:
(format: Total Cost - Number of Units - Unit Cost)
Variable: $442,000 - 17,000 - $26

Fixed : 170,000 - 17,000 - 10

Total : $612,000 - 34, 000 - $36

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Selling and administrative expenses:

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

Fixed : 32,000

Total : $66,000

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Q. 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.

Solution Preview

Absorption Costing Income Statement
Month Ending May 31, 2007

Sales (17000 x $60) : 1,020,000
Cost of good sold : 476,000
Gross Profit ...

Solution Summary

Absorption and variable costing calculations are examined. Selling and administrative expenses are analyzed.

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