Question

Just need requirement 2(variable costing income statement

Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations: Prior Year 1,800 units 2,000 units Current Year 2,200 units 2,000 units Sales Production Production cost Factory-variable (per unit) -fixed Marketing-variable Administrative-fixed $ 0.60 $1,000 $ 0.40 $ 500 $ 0.60 $1,000 $ 0.40 $ 500 Required: 1. Prepare an income statement for each year based on full costing. 2. Prepare an income statement for each year based on variable costing. 3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.

Answer 1

Ans. 2	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
	Unit product cost under Variable Costing:
	Variable Overhead per unit	$0.60
	Total production cost per unit	$0.60
Ans.	YALE COMPANY
	Variable Costing
	Income Statement
	PARTICULARS	Prior Year		Current Year
	Sales		$5,400		$6,600
	Less: Variable cost of goods sold:
	Opening inventory	$0		$120
	Add: Cost of goods produced	$1,200		$1,200
	Variable cost of goods available for sale	$1,200		$1,320
	Less: Ending inventory	-$120		$0
	Variable cost of goods sold		$1,080		$1,320
	Gross Contribution Margin		$4,320		$5,280
	Less: Variable Selling and Administrative expenses		$720		$880
	Contribution Margin		$3,600		$4,400
	Less: Fixed expenses:
	Fixed manufacturing overhead	$1,000		$1,000
	Fixed selling and adm. expenses	$500	$1,500	$500	$1,500
	Net operating income		$2,100		$2,900
	*Working Notes:
	*Sales = Units sold * Unit selling price
	Prior Year   (1,800 * $3)	$5,400
	Prior Year   (2,200 * $3)	$6,600
	*Cost of goods produced = Units produced * Unit product cost
	Prior Year   (2,000 * $0.60)	$1,200
	Current year (2,000 * $0.60)	$1,200
	Ending inventory units for prior year = Production - Sales
	2,000 - 1,800 = 200 units
	Ending inventory units for current year = Beginning inventory units + Units produced - Units sold
	200 + 2,000 - 2,200   =   0 units
	Cost of ending inventory = Ending inventory units * Unit product cost
	Prior year    (200 * $0.60)	$120
	Current   year    ( 0 * $0.60)	$0
	Beginning inventory for Current year = Ending inventory for prior year = $120
	*Variable selling and administrative cost = Variable marketing cost per unit * Units sold
	Prior Year   (1,800 * $0.40)	$720
	Prior Year   (2,200 * $0.40)	$880