Question

Variable and Absorption Costing Chandler Company sells its product for $100 per unit. Variable manufacturing costs per unit are $40, and fixed manufacturing costs at the normal operating level of 10,000 units are $240,000. Variable selling expenses are $16 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2019. During 2019, the company produced 10,000 units and sold 8,000. Would net income for Chandler Company in 2019 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. Absorption Costing Income Statement Sales Cost of Goods Sold: Beginning Inventory Variable Costs Fixed Costs Less: Ending Inventory Cost of Goods Sold Administrative expense Net Income Variable Costing Income Statement Sales Cost of Goods Sold: Beginning Inventory Variable Costs Variable cost of goods sold Fixed costs: Resume DCT

Answer 1

Absorption costing income statement :
Sales (8000*$100)		$      800,000.00
Cost of goods sold
Beginning inventory	$               -
Variable cost (10000*$40)	$ 400,000.00
Fixed cost	$ 240,000.00
Less: Ending inventory ($(400000+240000)/10000*2000)	$ 128,000.00
Cost of goods sold		$      512,000.00
Gross profit		$      288,000.00
Selling expense		$      128,000.00
Administrative expense		$      104,000.00
Net operating income		$        56,000.00

Variable costing net operating income
Sales		$      800,000.00
Less: Cost of goods sold
Beginning inventory	$               -
Variable cost (10000*$40)	$ 400,000.00
Less : Ending inventory (2000*$40)	$   80,000.00
Variable cost of goods sold		$      320,000.00
Variable selling and administrative expense		$      128,000.00
Contribution margin		$      352,000.00
Fixed cost
Fixed manufacturing cost	$ 240,000.00
Administrative expense	$ 104,000.00
Total fixed cost		$      344,000.00
Net operating income		$          8,000.00