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Below is January's financial information EarMarked Inc. which manufactures winter hats with wireless wifi technology.

The company just opened its doors and is in its first month of operations.

Units produced $1,200$

Units sold $950$

Manufacturing costs:

Variable costs per unit:

Direct materials $$4\mathrm{.}10$

Direct labour $$2\mathrm{.}00$

Variable overhead $$2\mathrm{.}40$

Variable selling & administrative expenses $12\%$ of sales

Fixed costs:

Manufacturing overhead $$24,000\mathrm{.}00$

Selling and administrative $$12,000\mathrm{.}00$

The selling price is $$82$ per unit.

Required:

A$.$ Calculate the unit product cost under both absorption costing and variable costing, showing all required calculations.

B$.$ Prepare an income statement using variable costing, in good form.

C$.$ Prepare an income statement using absorption costing, in good form.

D$.$ Clearly and concisely explain the cause of the differences in operating results under the two methods.

A$.$

Var costing Abs costing

DM

DL

VarOH

FOH

Total $$-$ $$-$

B$.$

EarMarked Inc.

Income Statement $($Variable Costing$)$

For the month ended January $31,2023$

Sales

Variable expenses:

Variable cost of goods sold

Variable selling & administrative expenses

Contribution Margin

Fixed expenses:

Fixed overhead

Fixed selling & administrative expenses

Operating income

B$.$

EarMarked Inc.

Income Statement $($Absorption Costing$)$

For the month ended January $31,2023$

Sales

Cost of goods sold:

Opening inventory

Add: COGM

Goods available for sale

Less: Ending inventory

Cost of goods sold

Gross Margin

Less: Operating expenses:

Selling & administrative expenses

Operating income

C$.$

Variable costing operating income

Add: FOH deferred to FG inventory under abs costing

Absorption costing operating income

D$.$

What is the Difference Between the Absorption Costing and Variable Costing, for Finished Goods

inventory and Net Income?Question $1(25$ marks$)$

Below is January's financial information EarMarked Inc. which manufactures winter hats with wireless wifitechnology.

The company just opened its doors and is in its first month of operations.

The selling price is $$82$ per unit.

Required:

A$.$ Calculate the unit product cost under both absorption costing and variable costing, showing all required calculations.

B$.$ Prepare an income statement using variable costing, in good form.

C$.$ Prepare an income statement using absorption costing, in good form.

D$.$ Clearly and concisely explain the cause of the differences in operating results under the two methods.

B$.$

EarMarkedinc.

Income Statement $($Variable Costing$)$

For the month ended January $31,2023$

Sales

Variable expenses:

Variable cost of goods sold

B$.$

EarMarked Inc.

Income Statement $($A bsorption Costing$)$

For the month ended January $31,2023$

What is the Difference Between the Absorption Costing and Variable Costing, for Finished Goods

inventory and Net Income?

Answer & Explanation Solved by verified expert

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