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Differences between absorption and variable costing income statements.

Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below:

Units in beginning inventory 0
Units produced 9,000
Units sold 7,000
Sales $100,000

Less cost of goods sold:

Beginning inventory 0
Add cost of goods manufactured 54,000
Goods available for sale 54,000
Less ending inventory 12,000
Cost of goods sold 42,000
Gross margin 58,000
Less selling & admin. expenses 28,000
Net operating income $30,000

Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.

Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.

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Solution Summary

The difference between absorption and variable costing income statements are examined.