Chapter 6, Problem 6.16SE

Prepare income statements using variable costing and absorption costing when inventory units increase (Learning Objective 6)

Gleason Manufacturing manufactures a single product. Cost, sales, and production information for the company and its single product is as follows:

• Sales price per unit $47
• Variable manufacturing costs per unit manufactured (DM, DL, and variable MOH) $23
• Variable operating expenses per unit sold $1
• Fixed manufacturing overhead (MOH) in total for the year $322,000
• Fixed operating expenses in total for the year $47,000
• Units manufactured during the year 23,000 units
• Units sold during the year 18,000 units

Requirements

1. 1. Prepare an income statement for the upcoming year using variable costing.
2. 2. Prepare an income statement for the upcoming year using absorption costing.
3. 3. What causes the difference in income between the two methods?