Mitchell Company began operations this year. During this first year, the company produced 300,000 units and sold 250,000 units. Its income statement under absorption costing for its first year of operations follows.

Additional Information
a. Selling and administrative expenses consist of $1,200,000 in annual fixed expenses and $4 per unit in variable selling and administrative expenses.
b. The company€™s product cost of $7.50 per unit is computed as follows.
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.00 per unit
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.40 per unit
Variable overhead . . . . . . . . . . . . . . . . . . . . . . . . . $1.60 per unit
Fixed overhead ($450,000/300,000 units) . . . . . . . $1.50 per unit
Required
1. Prepare the company€™s income statement under variable costing.
2. Explain any difference between the company€™s income under variable costing (from part 1) and the income reportedabove.

Transcribed Image Text:

Sales (250.000 units X $18 per unit). Cost of goods sold $4,500,000 Beginning Inventory Cost of goods manufactured (300,000 units × $7.50 per unit) 、… ‘ 250.000 Cost of good avallable for sale 2250,000 Ending inventory (50,000 x $7.50) 375,000 1,875,000 2,625.000 $ 425,000