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Income Statement Using Variable & Absorption Costing

Blue Mountain Products manufactures and sells a variety of camping products. Recently the company opened a new plant to manufacture a light weight, self-standing tent. Cost and sales data for the first month of operations are shown below.

Manufacturing costs:
Fixed overhead $200,000
Variable overhead $4 per tent
Direct labor $16 per tent
direct materials $40 per tent

Beginning inventory 0 tents
tents produced 10,000
tents sold 9,000
Selling and administrative costs:
Fixed $400,000
Variable $6 per tent sold

The tent sells for $150. Management is interested in the opening month's results and has asked for an income statement.

Instructions:

a) Assuming the company uses absorption costing, do the following
I) Calculate the manufacturing cost per unit.
II) Prepare an absorption costing income statement for the month of June 2005.
b) Assuming the company uses variable costing, do the following.
i) calculate the manufacturing cost per unit.
ii) Prepare a variable costing income statement for the month of June 2005.
c) Reconcile the difference in the income between the two methods.

Solution Summary

This solution is comprised of a detailed explanation to calculate the manufacturing cost per unit and prepare an absorption using variable and absorption costing and reconcile the difference in the income between the two methods. Attached as a 2-page Word document.

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