Problem - Variable and absorption costing, explaining operating-income differences: Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2006 are:
The selling price per vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 500 units. There is no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.
1. Prepare April and May 2006 income statements for Nascar Motors under (a) variable costing and (b) absorption costing.
2. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing.