Variable and absorption costing; explaining operating-income differences. Zippy ©

Motors assembles and sells motor vehicles, and uses standard costing. Actual data relating to 1.

a. Operating income, April and May 2010 are:

The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.
REQUIRED 1. Prepare April and May 2010 income statements for Zippy Motors under

(a) variable costing and

(b) absorption costing.
2. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing.LO1

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April May Unit data: Beginning inventory Production Sales 0 150 500 400 350 520 Variable costs: Manufacturing cost per unit produced $10,000 $10,000 Operating (marketing) cost per unit sold 3,000 3,000 Fixed costs: Manufacturing costs $2,000,000 $2,000,000 Operating (marketing) costs 600,000 600,000