Question

PB16.

LO 6.5Wifi Apps has these costs associated with its production and sale of devices that allow visual communications between cell phones:



Prepare an income statement under both the absorption and variable costing methods along with a reconciliation between the two statements.

Answer 1

VARIABLE COSTING

sales revenue 3,910,000 (23,000 X 170)

variable cost (1,058,000) (23,000 X 46)

contribution margin 2,852,000

fixed overhead 858,000

fixed S&A 895,000

NET INCOME 1,099,000

ABSORPTION COSTING

sales revenue 3,910,000

COGS (1,564,000) (23,000 X 68)

Gross profit 2,346,000

S&A

variable 92,000

fixed 895,000

net income 1,359,000

The difference arise as the fixed manufacturing cost are posted entirely in the variable cost while only a portion for the absorption cost:

26 dollar per unit time 10,000 units in inventory with capitalized fixed cost

260,000

difference in operating income:

1,359,000 - 1,099,000 = 260,000

Step-by-step explanation:

variable costing will add up the variable cost per unit and multiply by the 23000 unit sold:

Selling & Adminsitrative 4

materials 23

labor 15

variable manufacturing 4

the fixed cost will be posted entirely.

absorption will distribute the manufacturing fixed cost among the produced units:

858,000 / 33,000 = 26 dollar per unit

total cost per unit:

26 fixed + 23 materials + labor 15 + variable 4 = 68

The difference arise as the fixed manufacturing cost are posted entirely in the variable cost while only a portion for the absorption cost:

26 dollar per unit time 10,000 units in inventory with capitalized fixed cost

260,000

difference in operating income:

1,359,000 - 1,099,000 = 260,000

NOTE attached missing information