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

The company had no beginning inventory.

Read the requirements

1.	Prepare two income statements for the year, one using absorption costing 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?
2.	What is the underlying reason for the difference in operating income between the two costing methods?

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:

Less:

Choose from any list or enter any number in the input fields and then click Check Answer.

Selling price per unit. . . . . . . . . . . . . . . . . . . . . . . . .	$48.00
Direct material per unit. . . . . . . . . . . . . . . . . . . . . . . .	$14.00
Direct labor per unit. . . . . . . . . . . . . . . . . . . . . . . . . .	$5.00
Total annual manufacturing overhead. . . . . . . . . . .	$150,000
Fixed portion of annual manufacturing overhead	$105,000
Variable operating expenses per unit sold. . . . . . .	$4.00
Fixed operating expenses per year in total. . . . . . .	$45,000
Units manufactured. . . . . . . . . . . . . . . . . . . . . . . . . .	15,000
Units sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13,000