Empey Manufacturing produces towels to be sold as souvenirs at sporting events

throughout the world. Assume that units produced equalled units sold in 2020. The company's

variable-costing income statement and other data are as follows:

EMPEY MANUFACTURING

Income Statement

Year Ended December 31, 2020

Variable Costing

Sales (260,700 units) $521,400

Variable cost of goods sold $255,486

Variable selling expenses 31,284

Variable administrative expenses 36,498 323,268

Contribution margin 198,132

Fixed manufacturing overhead 96,459

Fixed selling expenses 38,500

Fixed administrative expenses 42,625 177,584

Net income $ 20,548

Unit selling price $2.00

Variable costs per unit

Direct material 0.26

Direct labour 0.34

Variable overhead 0.38

Variable selling expenses 0.12

Variable administrative expenses 0.14

Instructions

a.

Calculate the manufacturing cost per towel under variable costing.

b.

Calculate the manufacturing cost per towel under absorption costing.

c.

Prepare an absorption-costing income statement for Empey Manufacturing.

d.

Explain why there is or is not a difference in the net income amounts in the two income

statements.

e.

Explain why Empey Manufacturing might want to prepare both an absorption-costing income

statement and a variable-costing income statement.