Octavius Company produces a 10-inch chef knife used by commercial chefs. The knives sell for $50 each. In 2014, the company produced 50,000 units and sold 45,000 units. There was no beginning inventory. Following are variable and full costing income statements for 2014.

Required
Reconcile the difference in profit between the two income statements.

Transcribed Image Text:

Income Statement Prepared Using Variable Costing Octavius Company Income Statement For the Year Ending December 31, 2014 Sales Less variable costs: $2,250,000 Variable cost of goods sold Variable selling expense $650,000 150,000 800,000 1,450,000 Contribution margin Less fixed costs: Fixed manufacturing expense Fixed selling expense Fixed administrative expense 600,000 150,000 100,000 850,000 S600,000 Net income Income Statement Prepared Using Full Costing Octavius Company Income Statement For the Year Ending December 31,2014 Sales Less cost of goods sold Gross margin Less selling and administrative ex $2,250,000 1,190,000 1,060,000 penses: Selling expense Administrative expense $300,000 100,000 400,000 660,000 Net income