The following data pertains to the operations of Alpha Corporation for the year ended December 31, 2019, its first year of operations. Alpha Corporation makes computer equipment. Round ending inventory computations to the nearest dollar.

DATA FOR 2019
Sales	2,950	units	@	$	132	per unit
Variable manufacturing costs	3,220	units	@	$	39	per unit
Variable selling and administrative expenses				$	3	per unit
Fixed manufacturing costs				$	93,380
Fixed selling and administrative expenses				$	43,000
Finished goods inventory, December 31, 2019					270	units

Required:

1. Prepare an income statement for the year using the absorption costing approach.
2. Prepare an income statement for the year using the direct costing approach.
3. What is the difference between the net income or loss computed under the two methods?

Analyze: Assume that Alpha Corporations manufacturing managers believe that only those costs that contribute directly to product production should be assigned to cost of goods manufactured. Which costing method would these managers prefer?

a.

Prepare an income statement for the year using the absorption costing approach. (Do not round your intermediate calculations. Round the final answers to the nearest dollar amount.)

ALPHA CORPORATION
Income Statement (Absorption Costing)
For Year Ended December 31, 2019
Sales
Cost of goods sold
Total cost of goods manufactured		$0
Cost of goods sold
			$0
Selling and administrative expenses
			0

b.

Prepare an income statement for the year using the direct costing approach.

ALPHA CORPORATION
Income Statement (Direct Costing)
For Year Ended December 31, 2019
Sales
Cost of goods sold
Variable manufacturing costs
Cost of goods sold
		$0
Variable selling and administrative costs
		$0
Fixed costs and expenses
		0

c.

What is the difference between the net income or loss computed under the two methods? (Do not round intermediate calculations and round the final answer to the nearest dollar amount.)

	Difference in net income

__________

d.

Assume that Alpha Corporations manufacturing managers believe that only those costs that contribute directly to product production should be assigned to cost of goods manufactured. Which costing method would these managers prefer?

The managers would prefer

____________