2009 Absorption and Variable Costing Comparisons Peachtree Company manufactures peach jam. Because of bad weather, its peach crop was small. The following data have been gathered for the summer quarter Beginning inventory (cases) 0 Cases produced 10,000 Cases sold 9,300 Sales price per case $60 Direct materials per case $9 Direct labor per case $8 Variable manufacturing overhead per case $3 Total fixed manufacturing overhead $400,000 Variable selling and administrative cost per case $2 Fixed selling and administrative cost $48,000 Functional Income Statement Contribution Income Statement Ending Inventory Analysis (a) Prepare a functional income statement for the quarter using absorption costing. (Do not use negative signs with your answers, EXCEPT if you calculate a net loss.) Peachtree Company Functional (Absorption Costing) Income Statement For the Summer Quarter 2009 Sales $ 552,000 Cost of goods sold: Variable costs $ 174,800 Fixed costs 18,400 Goods available 0 Ending inventory 0 Gross profit Operating expenses: Variable selling and administrative $ 0 0 Fixed selling and administrative 0 0 Net income (loss) 0 0 $ 0 Absorption and Variable Costing Comparisons Peachtree Company manufactures peach jam. Because of bad weather, its peach crop was small. The following data have been gathered for the summer quarter of 2009: Beginning inventory (cases) 0 Cases produced 10,000 Cases sold 9,300 c. Sales price per case $60 Direct materials per case $9 Direct labor per case $8 $ Variable manufacturing overhead per case $3 Total fixed manufacturing overhead $400,000 Variable selling and administrative cost per case $2 Fixed selling and administrative cost $48,000 Functional Income Statement Contribution Income Statement Ending Inventory Analysis 0 (b) Prepare a contribution income statement for the quarter using variable costing. (Do not use negative signs with your answers, EXCEPT if you calculate a net loss.) Peachtree Company Contribution (Variable Costing) Income Statement For the Summer Quarter 2009 Sales $ Variable expenses: Manufacturing $ 0 Selling and administrative 0 Contribution margin Fixed expenses Manufacturing overhead $ Selling and adminstrative 0 0 0 Net income (loss) $ 0 0 0 0 10,000 Cases sold Absorption and Variable Costing Comparisons Peachtree Company manufactures peach jam. Because of bad weather, its peach crop was small. The following data have been gathered for the summer quarter of 2009: Beginning inventory (cases) 00 Cases produced 9,300 Sale Sales price per case $60 Direct materials per case $9 Direct labor per case $8 Variable manufacturing overhead per case $3 Total fixed manufacturing overhead $400,000 Variable selling and administrative cost per case Fixed selling and administrative cost $48.000 Functional Income Statement Contribution Income Statement Ending Inventory Analysis (c) What is the value of ending inventory under absorption costing? $ 0 (d) What is the value of ending inventory under variable costing? $ 0 (e) The difference in the value of ending inventory in parts (c) and (d) is explained by the following difference between absorption an variable costing: Variable costing treats all manufacturing costs as variable costs while absorption costing treats only variable manufacturing costs as variable costs. OVariable costing assigns only variable manufacturing costs to products while absorption costing assigns both variable and fixed manufacturing costs to products. OAbsorption costing treats all manufacturing costs as period costs while variable costing treats only variable manufacturing costs as period costs. OAbsorption costing treats fixed costs as period costs while variable costing treats fixed costs as product costs