Lyon Furnaces prepares the income statement under variable costing for its managerial reports, and it prepares the income statement under absorption costing for external reporting. For its first month of operations, 375 furnaces were produced and 225 were sold; this left 150 furnaces in ending inventory. The income statement information under variable costing follows.
Sales (225 × $1,600) | $360,000 |
Variable production cost (225 × $625) | 140,625 |
Variable selling and administrative expenses (225 × $65) | 14,625 |
Contribution margin | 204,750 |
Fixed overhead cost | 56,250 |
Fixed selling and administrative expense | 75,000 |
Net income | $ 73,500 |
1.Prepare this company’s income statement for its first month of operations under absorption costing.
2.Explain the difference in income between the variable costing and absorption costing income statement.
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