Case 8-51 b-c BBG Corporation manufactures a synthetic element, pixie dust. Management was surprised to learn that income before taxes had dropped even though the sales volume had increased. Steps had been taken during the year to improve profitability. The steps included raising the selling price by 12% because of a 10% increase in production costs, and instructing the selling and administrative departments to spend no more this year than last year. Both changes were implemented at the beginning of the year. BBG's accounting department prepared and distributed to top management the comparative income statements and related financial information that follow (BBG uses the FIFO inventory method for finished goods): BBG CORPORATION Comparative Statements of Operating Income (in thousands) 2019 2020 Sales revenue $9,000 $11,200 Cost of goods sold 7,2008,320 Manufacturing volume variance (600) 495 Adjusted cost of goods sold 6,600 8,815 Gross margin 2,400 2,385 Selling and administrative expenses 1,500 1,500 Income before taxes $900 $885 BBG CORPORATION Selected Operating and Financial Data 2019 Sales price $10.00 /kg Material costs 1.50/kg Direct labour cost 2.50/kg Variable overhead costs 1.00/kg Fixed overhead costs 3.00/kg Total fixed overhead costs 3,000,000 Selling and administrative expenses (all fixed) $1,500,000 Sales volume 900,000 kg Beginning inventory 300,000 kg 2020 $11.20/kg 1.65 /kg 2.75 /kg 1.10 /kg 3.30 /kg 3,300,000 $1,500,000 1,000,000 kg 600,000 kg It has been proposed that the company use variable costing for its internal reporting. Prepare the variable-costing income statement for 2020. BBG CORPORATION Variable-Costing Income Statement 2020 Sales 11200000 Variable Cost of Goods Available for Sale 1100000 Variable Cost of Goods Manufactured 4400000 Total Variable Costs 5500000 Contribution Margin 5700000 Less Less Fixed Costs Fixed Costs Fixed Manufacturing Overhead 3300000 Fixed Selling and Administrative Costs 1500000 T Total Fixed Costs 4800000 Net Income / (Loss) 900000 x Your answer is incorrect. Try again. Reconcile the difference in income before taxes using the absorption-costing method currently used by BBG and the variable-costing method proposed for 2021. Variable-costing net income 900000 FMOH deferred in ending inventory 25800 FMOH released in beginning inventory Absorption-costing net income (585000)