Hamilton Heating Company is a small manufacturer of auxiliary heaters. The units sell for $100 each. In 2008, the company produced 1,200 units and sold 1,000 units. Below are variable and full costing income statements for 2008.
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Income Statement Prepared Using Variable Costing
Hamilton Heating Company
Income Statement
For the Year Ending December 31, 2008
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Sales
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$ 100,000
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Less variable costs:
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Variable cost of goods sold
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$20,000
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Variable selling expense
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10,000
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30,000
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Contribution margin
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70,000
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Less fixed costs:
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Fixed manufacturing expense
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24,000
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Fixed selling expense
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8,000
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Fixed administrative expense
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12,000
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44,000
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Net Income
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$26,000
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Income Statement Prepared Using Full Costing
Hamilton Heating Company
Income Statement
For the Year Ending December 31, 2008
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Sales
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$ 100,000
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Less cost of goods sold
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40,000
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Gross margin
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60,000
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Less selling and administrative expenses:
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Selling expense
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$18,000
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Administrative expense
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12,000
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30,000
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Net Income
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$30,000
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Required:
Reconcile the difference in profit between the two income statements.