Question 3

To have a better picture of what has happened during the previous year, Koren and Jingran want to figure out the operating profit for Sleep Well Inc., and Jonathan has asked you to provide him with this information. The beds are sold for $900 each. When preparing the income statements, please break down the information as much as you can. Keep in mind you are not preparing reports for financial accounting, so break down the cost items as much as possible.

Required

1. a) Prepare a variable-costing income statement for the previous year for Sleep Well Inc. (e.g., Panel A,

   Exhibit 7.3, Chapter 7, 5 marks)

2. b) Prepare an absorption-costing income statement for the previous year for Sleep Well Inc. (e.g., Panel

   B, Exhibit 7.3, Chapter 7, 5 marks)