Question No. 4: Absorption and Marginal Costing(5 Marks; 20 Minutes)

The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:

Beginning inventory

0

Units produced

9,000

Units sold

7,000

Selling price per unit

$

47

Selling and administrative expenses:

Variable per unit

$

4

Fixed per year

$

58,000

Manufacturing costs:

Direct materials cost per unit

$

10

Direct labor cost per unit

$

6

Variable manufacturing overhead cost per unit

$

5

Fixed manufacturing overhead per year

$

90,000

Assume that direct labor is a variable cost.

Required:

1. Prepare a income statement for the year using absorption costing
2. Prepare a income statement for the year using variable costing
3. Reconcile the absorption costing and variable costing net operating income figures