Mesa Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below:
|
Units in beginning inventory |
2,000 |
|
Units produced |
9,000 |
|
Units sold |
10,000 |
|
Sales |
$100,000 |
|
Less cost of goods sold: |
|
|
Beginning inventory |
12,000 |
|
Add cost of goods manufactured |
54,000 |
|
Goods available for sale |
66,000 |
|
Less ending inventory |
6,000 |
|
Cost of goods sold |
60,000 |
|
Gross margin |
40,000 |
|
Less selling and admin. expenses |
28,000 |
|
Net operating income |
$12,000 |
Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This overhead was applied at a rate of $2 per unit. Variable selling and administrative expenses were $1 per unit sold.
Required:
Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.