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    Cost Accounting for Beginning Inventory

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    Consider the following information:

    Q1 Q2 Q3
    Beginning inventory (units) 0 300 300
    Actual units produced 1,000 800 1,250
    Budgeted units to be produced 1,000 1,000 1,000
    Units sold 700 800 1,500
    Manufacturing costs per unit produced $900 $900 $900
    Marketing costs per unit sold $600 $600 $600
    Fixed manufacturing costs $400,000 $400,000 $400,000
    Fixed marketing costs $140,000 $140,000 $140,000
    Selling price per unit $2,500 $2,500 $2,500

    There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs.

    a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing.
    b) Explain the differences in operating income between the two costing systems for each quarter. Be specific!

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    Solution Summary

    The cost accounting for beginning inventory is discussed.