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 12,000 units are $240,000. Variable selling expenses are $16 per unit sold. Fixed administrative expenses total $104,000. Chandler had no beginning inventory in 2016. During 2016, the company produced 12,000 units and sold 9,000. Would net income for Chandler Company in 2016 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				Answer
Cost of Goods Sold:
Beginning Inventory			Answer
Variable Costs			Answer
Fixed Costs			Answer
Less: Ending Inventory			Answer
Cost of Goods Sold				Answer
Answer				Answer
Answer				Answer
Administrative expense				Answer
Net Income				Answer

Variable Costing Income Statement
Sales				Answer
Cost of Goods Sold:
Beginning Inventory			Answer
Variable Costs			Answer
Answer			Answer
Variable cost of goods sold				Answer
Answer				Answer
Answer				Answer
Fixed costs:
Answer			Answer
Administrative Expense			Answer
Total Fixed Cost				Answer
Net Income				Answer

Answer 1

Amount $ 900.000 Chnadler Company Variable costing Income statement Particulars Amount Sales (9000 * $ 100) Less: Variable Costs Beginning inventory Variable manufacturing cost 12000* $ 40 $ 480,000 Less : Ending inventory (12000 - 9000) * $ 40 $ 120,000 Cost of Goods Sold $360,000 Variable selling expenses 9000 S16 $144,000 Total Variable costs Contribution Margin Less: fixed Costs Fixed manufatcuring cost $ 240,000 Fixed admnistrative expenses $104,000 Total Fixed Cost Net Income (Loss) $504,000 $ 396,000 $ 344,000 $ 52,000

Amount $ 900,000 Chnadler Company Absorption costing Income statement Particulars Amount Sales ( 9000 * $ 100) Less: Variable Costs Beginning inventory Total Manufacturing cost $720,000 Less : Ending inventory 3000 * $ 40 | $180,000 Cost of Goods Sold Gross margin Less: Selling and administrative expenses Administrative expenses $104,000 Selling expenses 9000*$16 $144,000 Net Income (Loss) S540,000 $360,000 S 248,000 $112,000

Working Notes: AO Variable manufacturing costs 12000 * $ 40 Fixed manufacturing cost Total manufcturing cost Total Units Produced Manufacturing cost per unit ($ 720000/12000) Ending inventory ( 12000 - 9000) * $ 60 $ 480,000 $ 240,000 $ 720,000 $ 12,000 $ 60 $ 180,000 Net income under variable costing Net income under absoption costing $ 52,000 $ 112,000 Net income under absoption costing is more than the net income under variable costing