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Cost Accounting


2004 2005
Sales (units) 2,400 1,900
Production 2,100 1,500
Budgeted productions and sales 1,875 1,875
Beginning inventory 800 500

Data per unit (variable)
Price 2,100 1,950
Direct Materials 460 460
Direct Labor 275 275
Selling Costs 125 125

Period costs (fixed)
Manufacturing overhead 450,000 450,000
Selling and Administrative 150,000 150,000


a. Using the full costing method, which MedCo's accountant used to prepare the annual
financial statements, prepare the income statements for 2004 and 2005

b. Using variable costing, prepare and income statement for each period, and explain
the difference in net income from that obtained in requirement 1.

c. Write a brief explanation of the difference in income between vareiable costing and
absorption costing.


Solution Summary

Excel file contains income statement using variable costing and absorption costing and statement reconciling the profits.