Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Sales Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Cost of goods sold: Cost of goods manufactured Ending inventory Total cost of goods sold Gross profit Selling and administrative expenses Operating income $1,200,000 $800,000 (160,000) (640,000) $560,000 (305,000) $255,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin. Saxon, Inc. Variable Costing Income Statement Sales For the Year Ended December 31 $1,200,000 Variable cost of goods sold: Variable cost of goods manufactured $560,000 Ending inventory (112,000) Total variable cost of goods sold (448,000) Manufacturing margin $752,000 Variable selling and administrative expenses Contribution margin (240,000) $512,000 Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income $240,000 65,000 (305,000) $207,000 Sales Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 $1,200,000 Variable cost of goods sold: Variable cost of goods manufactured $560,000 Ending Inventory (112,000) Total variable cost of goods sold (448,000) Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs $752,000 (240,000) $512,000 $240,000 Fixed selling and administrative expenses 65,000 Total fixed costs Operating income (305,000) $207,000 Method Comparison Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company's sales price per unit is $75, and the number of units in ending inventory is 4,000. There was no beginning inventory. Item Number of units sold Variable sales and administrative cost per unit Amount Number of units manufactured Variable cost of goods manufactured per unit Fixed manufacturing cost per unit