Oak Mart, a producer of solid oak tables, reports the following data from its second year of business.

Sales price per unit

$

320

per unit

Units produced this year

100,000

units

Units sold this year

103,500

units

Units in beginning-year inventory

3,500

units

Beginning inventory costs

Variable (3,500 units $135)

$

472,500

Fixed (3,500 units $75)

262,500

Total

$

735,000

Manufacturing costs this year

Direct materials

$

48

per unit

Direct labor

$

62

per unit

Overhead costs this year

Variable overhead

$

3,400,000

Fixed overhead

$

7,400,000

Selling and administrative costs this year

Variable

$

1,300,000

Fixed

4,400,000

1. Prepare the current-year income statement for the company using variable costing.

OAK MART COMPANY
Variable Costing Income Statement
Sales
Less: Variable costs
Beginning inventory:
Variable costs
Manufacturing costs this year
Variable overhead costs
Direct materials
Direct labor
Total variable costs available	0
Less: Ending finished goods inventory
Variable cost of goods sold
Variable selling and administrative expenses
Total variable costs		0
Contribution margin
Less: Fixed expenses
Fixed selling and administrative costs
Fixed overhead costs
	-------------------
Net income (loss)		-----------------------------

2. Prepare the current year income statement for the company using absorption costing.

OAK MART COMPANY
Absorption Costing Income Statement
Sales
Less: Cost of goods sold
Beginning inventory
Manufacturing costs this year
Variable overhead costs
Direct labor
Direct materials
Less: Ending inventory
Fixed overhead costs
Cost of goods sold
Gross margin
Selling general and administrative expenses
Fixed selling and administrative costs
Variable selling and administrative expenses
Net income (loss)
Net income under variable costing is higher than net income under absorption costing by:
Fixed costs added to(subtracted from) inventory