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

By: Rashid Javed | Updated on: September 7th, 2022

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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