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:

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:

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:

(2) Reconciliation of net operating income: