Brown Printing, a small family$-$owned business, began operations on March $1,$ manufacturing premium quality books. The owners have expertise in printing but no accounting knowledge or experience. The company$$s independent accountant compiled the following data for the month of March. They have also requested an income statement.

Brown Printing March Income

Sales price $ $90$ per book

Number of units produced $15,000$ books

Number of units sold $10,000$ books

Direct materials cost $ $15$ per book

Direct labor cost $ $6$ per book

Variable manufacturing overhead $ $4$ per book

Fixed manufacturing overhead $ $240,000$ per month

Selling cost $3$ per book

Administrative expenses $ $160,000$ per month

The owners want to understand these numbers and how they can use the information to run the business.

Question $1$: Define and explain absorption costing and variable costing.

Question $2$: Prepare the income statement for March using variable costing.

Income Statement for March

Brown Printing

Sales

Variable cost of goods sold

Variable selling

Contribution margin

Fixed manufacturing overhead

Administrative expenses

Net income

Question $3$: Calculate the unit cost of goods sold using absorption costing.

Question $4$: Prepare the income statement for March using absorption costing.

March Income Statement

Brown Printing

Sales revenue

Cost of goods sold

Gross margin

Selling expenses

Administrative expenses

Net Income

Question $5$: Identify and describe two advantages of using variable costing.

Question $6$: Identify and describe two limitations of using absorption costing.

Question $7$: Explain why there is a difference in net income between variable costing and absorption costing. Show your calculations.