Problem:
Adams Company, a manufacturer of in-home decorative fountains, began operations on September 1 of the current year. Its cost and sales information for this year follows.
Production costs
Direct materials . . . . . . . . . . . . . . . . . . . . $40 per unit
Direct labor . . . . . . . . . . . . . . . . . . . . . . .$60 per unit
Overhead costs for the year
Variable overhead . . . . . . . . . . . . . . . . . $3,000,000
Fixed overhead . . . . . . . . . . . . . . . . . . . $7,000,000
Nonproduction costs for the year
Variable selling and administrative . . . . . . . $ 770,000
Fixed selling and administrative . . . . . . . . . $4,250,000
Production and sales for the year
Units produced . . . . . . . . . . . . . . . . . . . . . 100,000 units
Units sold . . . . . . . . . . . . . . . . . . . . . . . . 70,000 units
Sales price per unit . . . . . . . . . . . . . . . . . . $350 per unit
1. Prepare an income statement for the company using absorption costing.
2. Prepare an income statement for the company using variable costing.
3. Under what circumstances is reported income identical under both absorption costing and variable costing?