Avant Designs designs and manufactures polished-nickel fashion bracelets. It offers two bracelets: Aztec and Mayan. The following data summarize budgeted operations fot he current year:
- AVANT DESIGNS
- Summer of Budgeted Operations
- Current year
Aztec Mayan
- Sales price/unit $12 $15
- Variable cost/unit $4 $5
- Units sold 30,000 20,000
- Machine minutes/unit 2 3
- Beginning inventory 0 0
- Ending Inventory 3,000 1,000
Budget fixed manufacturing overhead for the year was $258,000.
Required:
a. Prepare the budgeted income statement for the year using variable cost.
b. Prepare the budgeted income statement for the year using absorption costing. Budgeted fixed manufacturing overhead is allocated to the two bracelets using machine minutes.
c. Explain the difference in the two net income figures computed in parts (a) and (b). That is, reconcile any difference in earnings and explain why it occurs.