Edmunds Launching Absorption Income and Variable/Throughput Income

The Edmunds Launching Company is trying to make sense of their income for the last two years. When managers assume that income is on the rise, it falls. They have two years of data for you to review and to help them in their analysis:

	Year 1	Year 2
Beginning FG inventory in units	100	?
Units Produced	3,000	1,000
Units Sold	2,000	2,000
Sales	$800,000	$800,000
Material Costs	$210,000	$70,000
Variable Labor	$66,000	$66,000
Variable Overhead	$24,000	$8,000
Fixed Overhead	$240,000	$240,000
Variable Selling & Administration	$60,000	$60,000
Fixed Selling and Administrative Expense	$120,000	$120,000

Additional information:

The costs and revenues for Year 0 were identical to those for Year 1.

Work-in-Process beginning and ending inventories are zero for Years 0, 1, and 2.

There are no price changes or inflation from Year 1 to Year 2.

The amount of beginning inventory for Year 2 is missing. Please determine how many units are in beginning inventory.

Determine the income using both absorption and variable/throughput costing.

Include an income reconciliation for both years to mathematically explain why absorption and variable/throughput incomes are not equal for each year, since the sales volumes are the same.

Present the data to managers so that they understand any income fluctuations.

Include in your discussion the factors that can change income for each method of determining income, (absorption and variable/throughput).