During the current period, McLaughlin Company sold 60,000 units of product at $30 per unit. At the beginning of the period, there were 10,000 units in inventory and McLaughlin Company manufactured 50,000 units during the period. The manufacturing costs and selling and administrative expenses were as follows:

Total Cost Number of Units Unit Cost

Beginning inventory:

Direct materials.....................................$ 67,000 10,000 $ 6.70

Direct labor........................................ 155,000 10,000 15.50

Variable factory overhead...........................18,000 10,000 1.80

Fixed factory overhead............................. 20,000 10,000 2.00

Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 260,000 $26.00

Current period costs:

Direct materials.....................................$350,000 50,000 $ 7.00

Direct labor........................................ 810,000 50,000 16.20

Variable factory overhead...........................90,000 50,000 1.80

Fixed factory overhead.............................100,000 50,000 2.00

Total . . . . . . . . . . . . . . . . . . . . . . . . . $1,350,000 $27.00

Selling and administrative expenses:

Variable............................................ $ 65,000

Fixed ............................................... 45,000

Total . . . . . . . . . . . . . . . . . . . . . . . . $ 110,000

Instructions

1. Prepare an income statement based on the absorption costing concept.

2. Prepare an income statement based on the variable costing concept.

3. Give the reason for the difference in the amount of income from operations in parts (1)

and (2).