Avant Designs and manufactures polished-nickle fashion bracelets. It offers two bracelets: Aztec and Mayan. The following data summarized budgeted operations for the current year:
Summary of Budgeted Operations
Sales price/unit $12 $15
Variable cost/unit $4 $5
Units sold 30,000 20,000
Machine minutes/units 2 3
Beginning inventory 0 0
Ending inventory 3,000 1,000
Budgeted fixed manufacturing overhead for the year was $258,000.
a. Prepare the budgeted income statement for the year using variable costing.
b. Prepare the budgeted income statement for the year using absorbtion costing. budgeted fixed manufacturing overhead is allocated to the bracelets using machine minutes.
c. Explain the difference in earnings and explain why it occurs.