IF THE IMAGE IS TOO SMALL PLEASE ZOOM IN YOUR WEB BROWSER BY CLICKING THE MIDDLE MOUSE BUTTON AND HOLDING THE CONTROL KEY AND SCROLLING FORWARD, WHICH INCREASES THE PAGE SIZE.

6. Watson Industries manufactures and sells a single product. The controller has prepared the following income statement for the most recent year: (Click the icon to view the data.) The company produced 10,000 units and sold 9,000 units during the year ending December 31. Fixed manufacturing overhead (MOH) for the year was $240,000, while fixed operating expenses were $59,000. The company had no beginning inventory Requirements 1. Will the company's operating income under variable costing be higher, lower, or the same as its operating income under absorption costing? Why? 2. Project the company's operating income under variable costing without preparing a variable costing income statement. 3. Prepare a variable costing income statement for the year. Requirement 1. Will the company's operating income under variable costing be higher, lower, or the same as its operating income under absorption costing? Why? Under variable costing, (3) Watson's operating income under variable costing will be (1) its operating income under absorption costing. This is because under absorption costing, some of (2) Requirement 2. Project the company's operating income under variable costing without preparing a variable costing income statement Begin by selecting the correct formula to reconcile the difference between the two income figures. Then enter the amounts to calculate the difference in operating income. (4) (5) Difference in operating income Now calculate Watson's projected operating income (loss) under variable costing. (Use a minus sign or parentheses for a loss.) Projected operating income (loss) under variable costing Requirement 3. Prepare a variable costing income statement for the year. (Use a minus sign or parentheses for a loss.) Watson Manufacturing Contribution Margin Income Statement (Variable Costing) For the Year Ended December 31 (6) Less: (7) (8) (9) (10) Less: (11) (12) (13) (14) 1: Data Table Watson Industries Traditional Income Statement (Absorption Costing) For the Year Ended December 31 Sales revenue $ 738,000 612.000 Less: Cost of goods sold Gross profit $ 126,000 Less: Operating expenses 66,000 $ 60,000 Operating income (1) O higher than lower than (2) the fixed MOH remains "trapped" on the balance sheet as part of the cost of inventory the fixed MOH remains "trapped" on the income statement as cost of goods sold. the variable MOH remains "trapped" on the balance sheet as part of the cost of inventory. the variable MOH remains "trapped" on the income statement as cost of goods sold. (3) O all fixed MOH incurred during the period is capitalized as part of the cost of inventory. all fixed MOH incurred during the period is expensed as a period cost. O none of the fixed MOH is expensed. O part of the fixed MOH incurred during the period is expensed and part goes into the cost of inventory. (4) O Change in inventory level in units O Change in total costs O Fixed MOH per unit O Total fixed cost O Total mixed cost Total variable cost O Variable cost per unit O the same as O Variable operating expenses (5) O Change in inventory level in units O Change in total costs O Fixed MOH per unit O Total fixed cost 0 Total mixed cost O Total variable cost O Variable cost per unit (6) O O Contribution margin Cost of goods sold O Fixed expenses O Fixed manufacturing overhead Operating income (loss) Fixed operating expenses O Sales revenue O Gross profit O Variable cost of goods sold O Operating expenses O Variable expenses (7) O Variable operating expenses O Variable operating expenses O Contribution margin O Cost of goods sold O Fixed expenses O Fixed manufacturing overhead Operating income (loss) O Fixed operating expenses O Sales revenue O Gross profit O Variable cost of goods sold O Operating expenses O Variable expenses (8) O O Contribution margin Cost of goods sold O Fixed expenses O Fixed manufacturing overhead O Fixed operating expenses O Gross profit O Operating expenses Operating income (loss) O Sales revenue Variable cost of goods sold O Variable expenses O Variable operating expenses O Variable operating expenses (9) O O Fixed manufacturing overhead O Contribution margin Fixed operating expenses Cost of goods sold O Gross profit Fixed expenses o Operating expenses O Operating income (loss) O Sales revenue O Variable cost of goods sold O Variable expenses (10) O O Contribution margin O Cost of goods sold Fixed expenses Fixed manufacturing overhead Operating income (loss) O Fixed operating expenses O Sales revenue O Gross profit O Variable cost of goods sold o Operating expenses O Variable expenses O Variable operating expenses O Variable operating expenses (11) O O Contribution margin Cost of goods sold Fixed expenses O Fixed manufacturing overhead O Fixed operating expenses O Gross profit O Operating expenses Operating income (loss) O Sales revenue O Variable cost of goods sold O Variable expenses (12) O O Fixed manufacturing overhead Operating income (loss) O Contribution margin O Fixed operating expenses O Sales revenue O Cost of goods sold O Gross profit O Variable cost of goods sold O Fixed expenses 0 Operating expenses O Variable expenses (13) O Variable operating expenses O Variable operating expenses O Contribution margin O Cost of goods sold Fixed expenses O Fixed manufacturing overhead Fixed operating expenses O Gross profit o Operating expenses Operating income (loss) O Sales revenue O Variable cost of goods sold O Variable expenses (14) O Contribution margin O Cost of goods sold Fixed expenses O Fixed manufacturing overhead Fixed operating expenses Gross profit Operating expenses o Operating income (loss) O Sales revenue O Variable cost of goods sold O Variable expenses