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 9,000

Sales price per case $60

Direct materials per case $7

Direct labor per case $9

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

(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 $Answer

Cost of goods sold:

Variable costs $Answe

Fixed costs Answer

Goods available Answer

Ending inventory Answer Answer

Gross profit Answer

Operating expenses:

Variable selling and administrative $Answer

Fixed selling and administrative Answer Answer

Net income (loss) $Answer

(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 $Answer

Variable expenses

: Manufacturing $Answer

Selling and administrative Answer Answer

Contribution margin Answer

Fixed expenses:

Manufacturing overhead $Answer

Selling and administrative Answer Answer

Net income (loss) $Answer

(c) What is the value of ending inventory under absorption costing? $Answer

(d) What is the value of ending inventory under variable costing? $Answer

(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 assigns only variable manufacturing costs to products while absorption costing assigns both variable and fixed manufacturing costs to products.

Absorption costing treats all manufacturing costs as period costs while variable costing treats only variable manufacturing costs as period costs.

Absorption costing treats fixed costs as period costs while variable costing treats fixed costs as product costs.

Variable costing treats all manufacturing costs as variable costs while absorption costing treats only variable manufacturing costs as variable costs. Check