Kenai Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,050 kayaks and sold 800. At the current year-end, the company reported the following income statement information using absorption costing.
Sales (800 × $1,050) | $840,000 |
Cost of goods sold (800 × $500) | 400,000 |
Gross margin | 440,000 |
Selling and administrative expenses | 230,000 |
Net income | $210,000 |
Additional Information
a.Production cost per kayak totals $500, which consists of $400 in variable production cost and $100 in fixed production cost—the latter amount is based on $105,000 of fixed production costs allocated to the 1,050 kayaks produced.
b.The $230,000 in selling and administrative expense consists of $75,000 that is variable and $155,000 that is fixed.
Required
1.Prepare an income statement for the current year under variable costing.
2.Explain the difference in income between the variable costing and absorption costing income statement.
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