Question

Problem 7. Hanks Corporation produces a single product. Operating data for the company and its absorption costing income statements for the last two years are presented below Units in beginning inventory Units produced Units sold Year Year 2 0 1,000 9,0009,000 8,000 10,000 YearYear 2 $80,000 $100,000 48,000 60,000 32,000 40,000 Selling and administrative expenses 28,000 30,000 S4,000 $10,000 Sales Cost of goods sold Gross margin Net operating income Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead was $18,000 in each year. This fixed manufacturing overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold. Required a. Compute the unit product cost in each year under variable costing b. Prepare new income statements for each year using variable costing c. Reconcile the absorption costing and variable costing net operating income for each year

Answer 1

3. Reconcile the variable costing and absorption costing Net income YEAR 1 YEAR 2 Variable Costing Net Operating Income Add (Deduct) Fixed Manufacturing Overheads cost Deferred in (releasedFrom) inventor Absorption Costing Net Operating Income 2,000 2,000 12,000 -2,000 4,000 10,000 Working Note -1 Year 1 Year-2 Units Produced Units Sold Difference in units -(Produces -Sold) Difference in manufacturing overheads- (Difference in units* fixed manufacturing overheads per unit) 2 1000 9000 8000 1000 2,000 9000 10000 1000 -2,000