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	9,400
Sales price per case	$60
Direct materials per case	$6
Direct labor per case	$10
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	$Answer
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:

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

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

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

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