(TCO E) Hanks Company produces a single product.

(TCO E) Hanks Company produces a single product.

(TCO E) Hanks Company produces a single product. Operating data for the company and its absorption costing income statement for the last year is presented below:

Units in beginning inventory……………………………..0

Units produced………………………………………..9,000

Units sold………………………………………………8,000

Sales…………………………………………………$80,000

Less cost of goods sold:

Beginning inventory………………………………………. 0

Add cost of goods manufactured………………54,000

Goods available for sale………………………….54,000

Less ending inventory………………………………6,000

Cost of goods sold………………………………..48,000

Gross margin……………………………………….32,000

Less selling & admin. expenses………………..28,000

Net operating income…………………………..$ 4,000

Variable manufacturing costs are $4 per unit. Fixed factory overhead totals $18,000 for the year. This 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.

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