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............................................................. $ 80,000Less 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 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.