Hanks Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below.
Units in beginning inventory..................................................0
Units produced....................................................................9,000
Units sold.............................................................................8,000
Sales......................................................... .........................$80,000
Less cost of goods sold:
Beginning inventory.............................................. 0
Add cost of goods manufactured..................54,000
Goods available for sale...................................54,000
Less ending inventory........................................6,000
Cost of goods sold.............................................................48,000
Gross margin........................................................................32,000
Less selling and admin. expenses.....................................28,000
Net operating income.........................................................$4,000
Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals $18,000 for the year. The fixed manufacturing 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.