Question
Variable and Absorption Costing Chandler Company sells its product for $104 per unit. Variable manufacturing costs...
Variable and Absorption Costing Chandler Company sells its product for $104 per unit. Variable manufacturing costs per unit are 545, and fixed manufacturing costs at the normal operating level of 12,000 units are $240,000. Variable selling expenses are $15 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2016. During 2016, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company in 2016 be higher if calculated using variable costing or using absorption costing? Calculate reported income using each method. Do not use negative signs with any answers. 900,000 x Absorption Costing Income Statement Sales Cost of Goods Sold: Beginning inventory O Variable Costs Fixed Costs Less: Ending Inventory Cost of Goods Sold Gross profit Selling expense Administrative expense Net Income X X X X OX Variable Costing Income Statement Sales Cost of Goods Sold: Beginning inventory Variable Costs Less: Ending inventory Variable cost of goods sold Variable selling expense Contribution margin Fixed costs: Manufacturing cost . 0 Administrative Expense Total Fixed Cost Net Income OX Ox
Answers
Note : Fixed manufacturing cost per unit under absorption costing = $240,000 / 12,000 units = $20 per unit.
Absorption Costing Income Statement
Sales (9,000 units * $104) $936,000 Cost of goods sold Beginning inventory 0 Variable costs (12,000 units * $45) 540,000 Fixed costs (12,000 units * $20) 240,000 Less :: Ending inventory [($45 + $20) * 3,000 units) 195,000 Cost of goods sold 585,000 Gross profit 351,000 Selling expense (9,000 units * $15) 135,000 Administrative expense 104,000 Net income $112,000 Variable Costing Income Statement
Sales (9,000 units * $104) $936,000 Cost of goods sold Beginning inventory 0 Variable cost (12,000 units * $45) 540,000 Less : Ending inventory (3,000 units * $45) 135,000 Variable cost of goods sold 405,000 Variable selling expense (9,000 * $15) 135,000 Contribution margin 396,000 Fixed costs : Manufacturing costs 240,000 Administrative expense 104,000 Total Fixed costs 344,000 Net income $52,000
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