October November Sales 1,500 units 2,900 units Production 2,500 units 2,500 units Variable manufacturing cost per game $ 17 17 Sales commission cost per game Total fixed manufacturing overhead 12,500 12,500 Total fixed selling and administrative costs 11,500 11,500
Preparing variable and absorption costing income statements
Game Source manufactures video games that it sells for $43 each. The company uses a fixed manufacturing
Requirements
- Compute the product cost per game produced under absorption costing and under variable costing.
- Prepare monthly income statements for October and November, including columns for each month and a total column, using these costing methods:
-
- absorption costing.
- variable costing.
3. Is operating income higher under absorption costing or variable costing in October? In November? Explain the pattern of differences in operating income based on absorption costing versus variable costing.
4. Determine the balance in Finished Goods Inventory on October 31 and November 30 under absorption costing and variable costing. Compare the differences in inventory balances and the differences in operating income. Explain the differences in inventory balances based on absorption costing versus variable costing.
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