Davis Company uses an absorption costing system based on standard costs. Total variable manufacturing costs, including direct material and labour costs, are $$3$ ?per unit. The standard production rate is $10$ ?units per machine$-$hour.

Total budgeted and actual fixed manufacturing overhead costs are $$450,000.$

Fixed Manufacturing overhead was allocated at $$9$ ?per machine$-$hour. $[$$$450,000/50,000$ ?machine$-$hours at denominator level$]$

The selling price is $$6$ ?per unit.

Variable marketing and administrative costs, which are driven by units sold, are $$1$ ?per unit.

Fixed marketing and administrative costs are $$100,000$

Beginning inventory in $2022$ ?was $50,000$ ?units.

Ending inventory in $2022$ ?is $40,000$ ?units.

Sales in $2022$ ?are $530,000$ ?units.

$\{...$So how many did we produce?$\}$

The same standard unit costs persisted throughout $2021$ ?and $2022.$

Variable overhead spending and efficiency variances total $$5,000$ ?Unfavourable. No need to calculate these.

Fixed overhead spending variance will calculate to zero.

Calculate Fixed Denominator $($Production Volume$)$ ?variance, if applicable.

REQUIRED:

Prepare an absorption costing income statement for $2022.$

Prepare a variable costing income statement for $2022.$

Explain the difference in operating income between the two statements $($with numbers$).$

Absorption Costing Income Statement (distinguish between Mfg. and Non-Mfg. Costs) units x $ per unit) Sales ( Cost of goods sold Beg Inv ) units x $ per unit) Variable Mfg. Costs ( units x $ per unit) Fixed Mfg. Cost APPLIED ($ per unit x units produced) Cost of goods available Less: ENDING INVENTORY ($ per unit x units) COGS before adjustments Variable OH Variance FIXED OH Variance COST OF GOODS SOLD Gross Margin OPERATING EXPENSES: Variable S&A ($ X units sold) e Fixed S&A Total S&A Operating Income ating 000.0825190 Tooning ew bib yasma? $500 bmx 1500 orqa bosing209 ser/ampronto bonibasqa besch Variable Costing Income Statement (Distinguish between Variable and Fixed Costs) Sales ( Variable Costs: units x $ per unit) Beg Inv ) units x $ per unit) Variable Mfg. Costs ( units x $ per unit) Cost of goods available Less: ENDING INVENTORY ($ per unit x units) Variable Mfg. C.G.Sold before variances Adjustment for Variable Mfg. variances Variable Mfg COGS Variable S&A (S X units sold) Total VARIABLE Costs CONTRIBUTION MARGIN Fixed Costs: Fixed MOH Costs (actual) Fixed Sell & Admin (actual) Total Fixed Costs OPERATING INCOME 87 22