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    Cost Accounting

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    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.

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    Solution Summary

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