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Question No. 4: Absorption and Marginal Costing(5 Marks; 20 Minutes)
The Dorset Corporation produces and sells a single product. The following data refer to the year just completed:
Beginning inventory
0
Units produced
9,000
Units sold
7,000
Selling price per unit
$
47
Selling and administrative expenses:
Variable per unit
$
4
Fixed per year
$
58,000
Manufacturing costs:
Direct materials cost per unit
$
10
Direct labor cost per unit
$
6
Variable manufacturing overhead cost per unit
$
5
Fixed manufacturing overhead per year
$
90,000
Assume that direct labor is a variable cost.
Required:
- Prepare a income statement for the year using absorption costing
- Prepare a income statement for the year using variable costing
- Reconcile the absorption costing and variable costing net operating income figures
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