13-58 Absorption and Variable Costing
The Trapani Company had the following actual data for 20X4 and 20X5:
|
20X4 |
20X5 |
|
|
Units of finished goods |
||
|
Opening inventory |
2,000 |
|
|
Production |
15,000 |
13,000 |
|
Sales |
13,000 |
14,000 |
|
Ending Inventory |
2,000 |
1,000 |
The basic production data at standard unit costs for the two years were
|
Direct materials |
$22 |
|
Direct labor |
18 |
|
Variable factory overhead |
4 |
|
Standard variable costs per unit |
44 |
Fixed factory overhead was budgeted at $98,000 per year. The expected volume of production was 14,000 units so the fixed overhead rate was $98,000 ÷ 14,000 = $7 per unit.
Budgeted sales price was $75 per unit. Selling and administrative expenses were budgeted at variable, $9 per unit sold, and fixed, $80,000 per year.
Assume that there were absolutely no variances from any standard variable costs or budgeted selling prices or budgeted fixed costs in 20X4.
There were no beginning or ending inventories of work in process.
1. For 20X4, prepare income statements based on standard variable (direct) costing and standard absorption costing. (The next problem deals with 20X5.)
2. Explain why operating income differs between variable costing and absorption costing. Be specific