Absorption costing and variable costing

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During the first month of operations ended May 31, 2012, Dorm Fridge Company manufactured 12,500 microwaves, of which 11,700 were sold. Operating data for the month are summarized as follows:

Sales                                                                                  $2,106,000

Manufacturing costs:

   Direct materials                          $1,050,000

   Direct labor                                     312,500

  Variable manufacturing cost            268,750

  Fixed manufacturing cost                137,500                      1,768,750

Selling and administrative expenses:

   Variable                                       $  169,650

   Fixed                                                 76,050                         245,700

 Instructions

1.      Prepare an income statement based on the absorption costing concept.

2.      Prepare an income statement based on the variable costing concept.

3.      Explain the reason for the difference in the amount of income from operations reported in (1) and (2).

 

    • 8 years ago
    Absorption costing and variable costing
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