Question - Absorption & Variable Costing
Eversoft Manufacturing produces towels to be sold as souveniers at sporting events throughout the world. Assume that units produced equalled units sold in 2016. The company's variable-costing income statement is as follows:
Eversoft Manufacturing
Income Statement
Year Ended December 31, 2016
Variable Costing
Sales (260,700 units) $521,400
Variable cost of goods sold $255,486
Variable selling expenses 31,284
Variable administrative expenses 36,498 323,268
Contribution margin 198,132
Fixed manufacturing overhead 93,852
Fixed selling expenses 38,500
Fixed administrative expenses 42,625 174,977
Net Income $ 23,155
Unit selling price $2.00
Variable costs per unit
Direct material .26
Direct labour .34
Variable overhead .38
Variable selling expenses .12
Variable administrative expenses .14
Required:
a) Calculate the manufacturing cost per towel under variable costing.
b) Calculate the manufacturing cost per towel under absorption costing.
c) Prepare an absorption costing income statement for Eversoft Manufacturing
d) Explain why or why not there is a difference in net income amounts in the two income statements.
e) Explain why Eversoft Manufacturing might want to prepare both an absorption and variable costing statements.