Exercise-2 (Variable costing income statement, Reconciliation of net operating income)

The following is the absorption costing income statement of Alpha Manufacturing Company for the year ended December 31, 2016:

exercise-2-vaac-img1

Fixed selling and administrative expenses are $600,000. Variable selling and administrative expenses are $6 per unit sold. The unit product cost under absorption costing is computed as follows:

exercise-2-vaac-img2

Required:

  1. Prepare an income statement of Alpha Manufacturing Company using variable costing system.
  2. Reconcile any difference in net operating income figure under variable costing system and under absorption costing system.

Solution

(1). Variable costing income statement:

exercise-2-vaac-img3

(2) Reconciliation of net operating income:

exercise-2-vaac-img4

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5 Comments on Exercise-2 (Variable costing income statement, Reconciliation of net operating income)

  1. leonard

    how do we deal with opening inventory

  2. Neil Hilton

    you have a workings mistake, your net profit under absorption costing equals 180,000 not 100,000

  3. nishesh stha

    what’s the work of prime cost per unit.

  4. Suzy

    Plinseag to find someone who can think like that

  5. LONGINUS T MWEUHANGA

    Gross contribution margin and gross contribution margin should the two be really separated?

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