Income Statements, Variable and Absorption Costing

The following information pertains to Vladamir, Inc., for last year:

Beginning inventory, units		1,300
Units produced		100,000
Units sold		101,000
Variable costs per unit:
Direct materials		$8.00
Direct labor		$10.00
Variable overhead		$1.00
Variable selling expenses		$2.00
Fixed costs per year:
Fixed overhead		$200,000
Fixed selling and administrative expenses		$230,000

There are no work-in-process inventories. Normal activity is 100,000 units. Expected and actual overhead costs are the same. Costs have not changed from one year to the next.

Required:

1. How many units are in ending inventory? units

2. Without preparing an income statement, indicate what the difference will be between variable-costing income and absorption-costing income. $

Feedback

1. How are the units produced factored into the calculation for ending inventory? Is beginning inventory considered? If so, how?

2. Review what you have learned in the chapter.

3a. Assume the selling price per unit is $30. Prepare an income statement using variable costing.

Vladamir, Inc.
Variable-Costing Income Statement
For Last Year
Sales	$
Less:
Variable cost of goods sold
Variable selling expenses
Contribution margin	$
Less:
Fixed overhead
Fixed selling and administrative expenses
Operating income	$

3b. Assume the selling price per unit is $30. Prepare an income statement using absorption costing.

Vladamir, Inc.
Absorption-Costing Income Statement
For Last Year
Sales	$
Less: Cost of goods sold
Gross profit	$
Less: Selling and administrative expenses
Operating income	$