Question - A Company sells its product for $20 each and uses standard costing. The budgeted production level used to calculate the fixed manufacturing cost per unit is 4,000 units. Actual production was 4,200 units, and 5,000 units were sold. Assume a beginning inventory of 1,500 units and assume that the unit product cost for beginning inventory is the same as the current period unit product cost. Also, assume no price, efficiency, or spending variances. Any production volume variance is written off to cost of goods sold in the period it is incurred.
Unit manufacturing costs are:
Direct materials $2.00
Direct manufacturing labor $5.00
Variable MOH costs $1.50
Total fixed MOH costs (budgeted and actual) $10,000 per year
Marketing expenses-variable $1.00 per unit
Marketing expenses - fixed $12,000 per year
Required:
a. Prepare an income statement using absorption costing.
b. Will the income based on variable costing be higher or lower than the income based on absorption costing - by how much? Explain your answer.