Conversion of Absorption Costing to Variable Costing. Vanguard Electrical Supply Company manufactures electric switches and timing devices in three operating divisions: Utility, Household, and Commercial. An income statement, showing the results for each division, is given for 1997. The company had total fixed manufacturing overhead of \(\$ 8,900,000\). Inventories were increased during the year in anticipation of more sales volume in 1998.

The plant controller, Margaret Hubert, believes that profits may be higher than they would be otherwise because of fixed costs being carried over to the next year as a part of inventory. She would like to have the statement revised to a variable costing basis and would like to know the manufacturing contribution margin for each division.
Additional analyses show the units and unit variable costs as follows. There are no partially completed units.

\section*{Required:}
1. Prepare an income statement on a variable costing basis that shows the contribution margin and direct profits by division and in total.
2. Prepare a reconciliation between the variable costing and absorption costing income statements. This reconciliation should show results by division and in total.
3. How much of the fixed cost was carried over to 1998 as a part of ending inventory cost for each division?

inventory cost for each division?

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VANGUARD ELECTRICAL SUPPLY COMPANY Income Statement for the Year 1997 (in Thousands) Net sales. Cost of goods sold: Inventory, beginning Production cost..... Cost of goods available for sale Less inventory, ending... Cost of goods sold Manufacturing profit. Utility $6,200 Household $5,150 Commercial $6,300 Total $17,650 $ 540 $ 240 $ 150 $ 930 5,400 4,000 4,200 $5,940 $4,240 $4,350 900 640 900 $5,040 $3,600 $3,450 13,600 $14,530 2,440 $12,090 $1,160 $1,550 $2,850 $ 5,560