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Problem 2: Absorption costing and Variable Costing (10 points: 4+4+2) Willis Inc. operated at 100% of capacity during its first month and provided following information:
Problem 2: Absorption costing and Variable Costing (10 points: 4+4+2) Willis Inc. operated at 100% of capacity during its first month and provided following information: \begin{tabular}{|l|r|r|} \hline Number of units produced: & 25,000 & units \\ \hline Production costs (25,000 units): & Total costs & Unit costs \\ \hline Direct materials & $137,500 & $5.50 \\ \hline Direct labor & $112,500 & $4.50 \\ \hline Variable Manufacturing overhead & $62,500 & $2.50 \\ \hline Fixed Manufacturing overhead & $50,000 & $2.00 \\ \hline Operating expenses: & & \\ \hline Variable operating expenses & $45,000 & \\ \hline Fixed operating expenses & $15,000 & \\ \hline \end{tabular} Willis sold 23,000 units during the first month at a price of $30 per unit. Required: A. Calculate the following Using Absorption Costing method: \begin{tabular}{|l|l|} \hline Product costs per unit: & \\ \hline Sales revenue: & \\ \hline Costs of goods sold: & \\ \hline Gross profit: & \\ \hline Operating expenses: & \\ \hline Income from operations: & \\ \hline Ending inventory: & \\ \hline \end{tabular} B. Calculate the following using Variable Costing method: \begin{tabular}{|l|l|} \hline Product costs per unit: & \\ \hline Sales revenue: & \\ \hline Total variable costs (VCOGS + VSA): & \\ \hline Contribution margin: & \\ \hline Total fixed costs (Fixed OH + FSA): & \\ \hline Income from operations: & \\ \hline Ending inventory: & \\ \hline \end{tabular} C. Under which costing method the income is higher? Explain why
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