Empey Manufacturing produces towels to be sold as souvenirs at sporting events throughout the world. Assume that units produced equalled units sold in 2016. The company's variable-costing income statement is as follows:

Instructions
(a) Calculate the manufacturing cost per towel under variable costing.
(b) Calculate the manufacturing cost per towel under absorption costing.
(c) Prepare an absorption-costing income statement for Empey Manufacturing.
(d) Explain why there is or is not a difference in the net income amounts in the two income statements.
(e) Explain why Empey Manufacturing Company might want to prepare both an absorption-costing income statement and a variable-costing income statement.

Transcribed Image Text:

EMPEY MANUFACTURING Income Statement Year Ended December 31, 2016 Variable Costing Sales (260,700 units) Variable cost of goods sold Variable selling expenses Variable administrative expenses Contribution margin Fixed manufacturing overhead Fixed selling expenses Fixed administrative expenses Net income S521,400 $255,486 31,284 36,498 323,268 198,132 96,459 38,500 42,625 177,584 $ 20,548 Unit selling price Variable costs per unit $2.00 Direct material Direct labour Variable overhead Variable selling expenses Variable administrative expenses $0.26 $0.34 $0.38 $0.12 $0.14