Discussion:
Assume Harvey Company produces a single product with available information for 2010 as follows:
a) The unit product costs under absorption and variable costing would be $16 and $10, respectively.
b) 25,000 units were produced and 20,000 units were sold during the year.
c) The selling price per unit is $30.
d) There is no beginning inventory.
e) The unit product cost is $10 for variable costing and $16 for absorption costing.
f) Fixed manufacturing cost was $150,000 in the current period.
g) Selling and administrative expenses were 50% fixed in the current period.
h) The net operating income is $90,000 under variable costing.
Required:
a) Prepare income statements using both variable and absorption costing.
b) Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ.
c) Determine the amount of fixed overhead deferred in ending inventory.