EXERCISE #1

(3 points)

Hamilton Heating Company is a small manufacturer of auxiliary heaters. The units sell for $100 each. In 2008, the company produced 1,200 units and sold 1,000 units. Below are variable and full costing income statements for 2008.

Income Statement Prepared Using Variable Costing Hamilton Heating Company Income Statement For the Year Ending December 31, 2008
Sales		$ 100,000
Less variable costs:
Variable cost of goods sold	$20,000
Variable selling expense	10,000	30,000
Contribution margin		70,000
Less fixed costs:
Fixed manufacturing expense	24,000
Fixed selling expense	8,000
Fixed administrative expense	12,000	44,000
Net Income		$26,000

Income Statement Prepared Using Full Costing Hamilton Heating Company Income Statement For the Year Ending December 31, 2008
Sales		$ 100,000
Less cost of goods sold		40,000
Gross margin		60,000
Less selling and administrative expenses:
Selling expense	$18,000
Administrative expense	12,000	30,000
Net Income		$30,000

Required:

Reconcile the difference in profit between the two income statements.

EXERCISE #2

(3 points)

The following information relates to Ronald Industries for fiscal 2008, the companys first year of operation:

Units produced	100,000
Units sold	80,000
Units in ending inventory	20,000
Fixed manufacturing overhead	$500,000

Required:

Calculate the amount of fixed manufacturing overhead that would be expensed in 2008 using full costing.

Calculate the amount of fixed manufacturing overhead that would be expensed in 2008 using variable costing.

Calculate the amount of fixed manufacturing overhead that would be included in ending inventory under full costing and reconcile it to the difference between parts a and b.