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Morey Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: MOREY COMPANY Income Statement

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Morey Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: MOREY COMPANY Income Statement $1,350,000 $ 0 Sales (40,000 units at $33.75 per unit) Cost of goods sold: Beginning inventory Add cost of goods manufactured (50,000 units at $21 per unit) Goods available for sale Less ending inventory (10,000 units at $21 per unit) Gross margin Selling and administrative expenses 1,050,000 1,050,000 210,000 840,000 510,000 420,000 Operating income $ 90,000 The company's selling and administrative expenses consist of $300,000 per year in fixed expenses and $3 per unit sold in variable expenses. The company's $21 per unit product cost given above is computed as follows: Direct materials Direct labour Variable manufacturing overhead Fixed manufacturing overhead ($250,000 + 50,000 units) $10 4 2 5 Unit product cost $21 Required: 1. Redo the company's income statement in the contribution format using variable costing. Variable Costing Income Statement Variable expenses: 0 0 Fixed expenses: 0 $ 0 2. Reconcile any difference between the operating income on your variable costing income statement and the operating income on the absorption costing income statement above. Variable costing operating income Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Absorption costing operating income $ 0

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