Summarized data for Walrus Co. for its first year of operations are:

Sales (100,000 units)	$5,000,000
Production Costs (120,000 units):
Direct Material	1,680,000
Direct Labor	1,500,000
Manufacturing Overhead:
Variable	840,000
Fixed	240,000
Selling and Administrative Expenses:
Variable	260,000
Fixed	430,000

A. Prepare an income statement under absorption costing.

Walrus Co.
Absorption Costing Income Statement
Sales		$
Cost of Goods Sold:
Direct Material	$
Direct Labor
Variable Overhead
Fixed Overhead
	$
Ending Inventory
Total Cost of Goods Sold
Gross Profit		$
Selling and Administrative Expenses
Net Income		$

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A. Remember that absorption costing includes all costs necessary for production. Conversely, variable costing only uses the variable costs that relate directly to the production process. Keep this in mind when calculating net income under each assumption.

B. Prepare an income statement under variable costing.

Walrus Co.
Variable Costing Income Statement
Sales		$
Variable Cost of Goods Sold:
Direct Material	$
Direct Labor
Variable Overhead
	$
Ending Inventory
Total Variable Cost of Goods Sold
Variable Selling Expenses
Contribution Margin		$
Fixed Expenses:
Fixed Manufacturing Overhead	$
Fixed Administrative Expenses
Net Income		$