Fitzpatrick Inc. planned and manufactured 500,000 units of its single product in 2010, its first year of operations. Variable manufacturing cost were $40 per unit of production. Planned fixed manufacturing costs were $1,200,000. Marketing and administrative costs (all fixed) were $500,000 in 2010. Fitzpatrick sold 450,000 units of products in 2010 at $50 per unit.

 

Units:
Beginning Inventory		0
Selling price per unit		$50.00
Units sold		450,000
Units produced		500,000
Unit variable costs:
Manufacturing		$40.00
Selling and administrative		$0
Fixed Costs:
Manufacturing--Total		$1,200,000
Manufacturing--Per Unit		$2.40
Selling and administrative		$500,000
Total Manufacturing Cost per Unit		$42.40

Required

1. Determine Fitzpatrick Inc.’s operating income using full costing.

2. Determine Fitzpatrick Inc.’s operating income using variable costing.

3. Explain the difference between the operating incomes in requirements 1 and 2.