1.Comparative income statementsvariable and absorption costing

Highlands Manufacturing Company has determined the cost of manufacturing a unit of product to be as follows, based on normal production of 50,000 units per year:

Direct materials $10

Direct labor 8

Variable factory overhead 6

$24

Fixed factory overhead 6

$30

Operating statistics for the months of July and August are as follows:

July Units produced 6,000 4,000

August Units sold 4,000 6,000

Selling and administrative expenses $25,000 $25,000

The selling price is $40 per unit. There were no inventories on July 1, and there is no work in process at August 31.

Directions: Complete the comparative income statements on the next page for July and August for Highlands under:

1 absorption costing 2 variable costing