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18-5. Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These

18-5. Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations:

Prior Year Current Year
Sales 2,500 units 4,300 units
Production 3,400 units 3,400 units
Production cost
Factoryvariable (per unit) $ 0.60 $ 0.60
fixed $ 1,700 $ 1,700
Marketingvariable $ 0.40 $ 0.40
Administrativefixed $ 500 $ 500

Required:

1. Prepare an income statement for each year based on full costing.

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2. Prepare an income statement for each year based on variable costing.

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3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.

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YALE COMPANY Full Costing Income Statement Prior Year Current Year Sales Less: Cost of goods sold Beginning inventory Cost of goods produced Available for sale Less: Ending inventory Cost of goods sold Gross margin Less: Selling and administrative costs Variable Fixed Operating income YALE COMPANY Variable Costing Income Statement Prior Year Current Year Sales Less: Cost of goods sold Beginning inventory Cost of goods produced Available for sale Less: Ending inventory Cost of goods sold Add: Variable selling and administrative Contribution margin Less: Fixed manufacturing costs Less: Selling and administrative costs Fixed Operating income YALE COMPANY Reconciling Difference in Operating Income Between Full and Variable Costing Prior Year Current Year Change in inventory in units x fixed overhead rate 0$ Difference in operating income 0

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