To calculate the net income for Emma Speaker Company in 2021 using both variable costing and absorption costing, we need to consider the different costs involved.
1. Variable costing:
First, let's calculate the total variable manufacturing costs for the units sold. Since 2,200 units were sold, the variable manufacturing costs per unit is $20, the total variable manufacturing costs would be:
Total variable manufacturing costs = Variable manufacturing costs per unit * Units sold
Total variable manufacturing costs = $20 * 2,200 = $44,000
Next, we need to calculate the variable expenses for the units sold. The variable expenses per unit sold are $8, so the total variable expenses would be:
Total variable expenses = Variable expenses per unit * Units sold
Total variable expenses = $8 * 2,200 = $17,600
Now, let's calculate the contribution margin, which is the difference between the selling price per unit and the variable expenses per unit:
Contribution margin = Selling price per unit - Variable expenses per unit
Contribution margin = $70 - $8 = $62
To calculate the net income, we subtract the fixed manufacturing costs, fixed administration expenses, and the variable expenses from the contribution margin:
Net income = Contribution margin - Fixed manufacturing costs - Fixed administration expenses - Variable expenses
Net income = $62 - $38,500 - $44,000 - $17,600
Net income = -$38,138
Therefore, using variable costing, the net income for Emma Speaker Company in 2021 would be -$38,138.
2. Absorption costing:
With absorption costing, we need to consider fixed manufacturing costs as part of the cost of the units sold. Since 5,500 units were produced and 2,200 units were sold, the fixed manufacturing costs allocated to the units sold would be:
Fixed manufacturing costs per unit = Fixed manufacturing costs at normal operating level / Units produced
Fixed manufacturing costs per unit = $38,500 / 5,500 = $7
Now, let's calculate the total fixed manufacturing costs for the units sold:
Total fixed manufacturing costs = Fixed manufacturing costs per unit * Units sold
Total fixed manufacturing costs = $7 * 2,200 = $15,400
To calculate the net income using absorption costing, we subtract the total variable manufacturing costs, fixed manufacturing costs, fixed administration expenses, and the variable expenses from the total sales revenue:
Net income = Total sales revenue - Total variable manufacturing costs - Total fixed manufacturing costs - Fixed administration expenses - Variable expenses
Net income = ($70 * 2,200) - $44,000 - $15,400 - $44,000 - $17,600
Net income = $154,000 - $44,000 - $15,400 - $44,000 - $17,600
Net income = $33,000
Therefore, using absorption costing, the net income for Emma Speaker Company in 2021 would be $33,000.
It's important to note that the net income differs between variable costing and absorption costing due to the treatment of fixed manufacturing costs. Variable costing only includes variable manufacturing costs in the cost of goods sold, while absorption costing includes both variable and fixed manufacturing costs in the cost of goods sold.