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# Variable costing and absorption costing income statement

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Case of cans sells for \$50. Variable standard costs of production for one case of cans are:
Direct material....\$15
Direct labour....5
Variable manufacturing overhead ....12
total variable manufacturing cost per case ....\$32
Variable selling and admin costs amount to \$1 per case. Budgeted fixed manufacturing overhead is \$800,000 per year and selling and admin cost is \$75,000 per year. Data pertain too the first three years of operation is:
File attached

There were no variances during first three years of operation.
Actual costs were the same as budgeted and standard costs.
1. Prepare operating income statement for its first three years of operation using
a. absorption costing
b. variable costing
2. Reconcile operating income reported under absorption and variable costing using shortcut method.
3. suppose that fourth year of operation actual production equals planned production, actual costs are equal to budgeted or standard costs and the company ends the yer with no inventory
a. what will be the difference between absorption costing income and variable costing income in year four.

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#### Solution Preview

Case of cans sells for \$50. Variable standard costs of production for one case of cans are:
Direct material....\$15
Direct labour....5
Variable manufacturing overhead ....12
total variable manufacturing cost per case ....\$32
Variable selling and admin costs amount to \$1 per case. ...

#### Solution Summary

Solution discusses the Variable costing and absorption costing income statement

\$2.19