Electricswitch is a division of Barmingham Products Corporation. The division manufactures and sells an electric switch used in a wide variety of applications. During the coming year it expects to sell 200,000 units for $8 per unit. Jeff Lynne is the division manager. He is considering producing either 200,000 or 250,000 units during the period.
Other information is presented in the schedule.

Instructions
(a) Prepare an absorption costing income statement, with one column showing the results if 200,000 units are produced and one column showing the results if 250,000 units are produced.
(b) Prepare a variable costing income statement, with one column showing the results if 200,000 units are produced and one column showing the results if 250,000 units are produced.
(c) Reconcile the difference in net incomes under the two approaches and explain what accounts for this difference.
(d) Discuss the relative usefulness of the variable costing income statements versus the absorption costing income statements for decision making and for evaluating the manager'sperformance.

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Division Information for 2011 Beginning inventory Expected sales in units Selling price per unit Variable manufacturing cost per unit Fixed manufacturing overhead cost (total) 0 200,000 $8 $3 $480,000 Fixed manufacturing overhead costs per unit: $2.40 per unit ($480,000 200,000) $1.92 per unit ($480,000 ÷ 250,000) Based on 200,000 units Based on 250,000 nits Manufacturing cost per unit Based on 200,000 units Based on 250,000 units $5.40 per unit ($3 variable $2.40 fixed) $4.92 per unit ($3 variable $1.92 fixed) $0.50 $12,000 ble selling and administrative expense Fixed selling and administrative expense (total)