Problem - Topple Company produces a single product. Operating data for the company and its absorption costing income statement for the last year are presented below.
Units in beginning inventory 0
Units produced 9,000
Units sold 7,000
Sales $100,000
Less cost of goods sold:Beginning inventory 0
Add cost of goods manufactured 54,000
Goods available for sale 54,000
Less ending inventory 12,000
Cost of goods sold 42,000
Gross margin 58,000
Less selling and admin. Expenses 28,000
Net operating income $30,000
Variable manufacturing costs are $4 per unit. Fixed manufacturing overhead totals $18,000 for the year. The fixed manufacturing 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.