Norwood Company, a producer of solid oak tables, reports the following data from its current year operations, which is its second year of business.
Sales price per unit . . . . . . . . . . . . . . . . . . . $320 per unit
Units produced this year . . . . . . . . . . . . . . . 115,000 units
Units sold this year . . . . . . . . . . . . . . . . . . . 118,000 units
Units in beginning-year inventory . . . . . . . . 3,000 units
Beginning inventory costs
Variable (3,000 units _ $135) . . . . . . . . . . $405,000
Fixed (3,000 units _ $80) . . . . . . . . . . . . . 240,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $645,000
Production costs this year
Direct materials . . . . . . . . . . . . . . . . . . . . $40 per unit
Direct labor . . . . . . . . . . . . . . . . . . . . . . . $62 per unit
Overhead costs this year
Variable overhead . . . . . . . . . . . . . . . . . $3,220,000
Fixed overhead . . . . . . . . . . . . . . . . . . . $7,400,000
Nonproduction costs this year
Variable selling and administrative . . . . . . . $1,416,000
Fixed selling and administrative . . . . . . . . . 4,600,000
1. Prepare the current year income statement for the company using absorption costing.
2. Prepare the current year income statement for the company using variable costing.
3. Explain any difference between the two income numbers under the two costing methods in parts 1 and 2.