King Industries has one product. Information about the production and sales of that product for the past year follow.

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The company had no beginning inventory.

Requirement $1.$ Prepare two income statements for the year, one using absorption costing and one using variable costing.

Begin by preparing the income statement for the year using absorption costing.

King Industries

Income Statement $($Absorption Costing$)$

For the Year Ended

Less:

Requirements

Prepare two income statements for the year, one using absorption costi and one using variable costing. Use those statements to answer the following questions:

a$.$ What is the product cost per unit using absorption costing?

b$.$ What is the product cost per unit using variable costing?

c$.$ What is the ending inventory balance using absorption costing?

d$.$ What is the ending inventory balance using variable costing?

e$.$ What is cost of goods sold using absorption costing?

f$.$ What is cost of goods sold using variable costing?

g$.$ What is operating income using absorption costing?

h$.$ What is operating income using variable costing?

What is the underlying reason for the difference in operating income betv the two costing methods?

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