Hanks Corporation produces a single product. Operating data for the company and its absorption costing income...

3.6 Ratings (329 Votes)

a) Product unit cost in each year = $4

Hanks Corporation
Income Statement (Variable Costing)
	Year 1	Year 2
Sales	$ 80,000	$ 100,000
Less: Variable expenses
Manufacturing cost	8,000*$4 = $32,000	10,000*$4 = 40,000
Selling and administrative expenses	8,000*$1 = $8,000	10,000*$1 = $10,000
Total variable expenses	$ 40,000	$ 50,000
Contribution margin	$ 40,000	$ 50,000
Fixed expenses
Fixed manufacturing overhead	$ 18,000	$ 18,000
Fixed selling and administrative expenses	$ 20,000	$ 20,000
Total fixed expenses	$ 38,000	$ 38,000
net operating income (Loss)	$ 2,000	$ 12,000

Reconciliation
Net Income (Variable costing)	$ 2,000	$ 12,000
Add: Fixed Manufacturing overhead carried forward	1,000*$2 = $2,000
Less: Fixed Manufacturing overhead brought in		1,000*$2 = $2,000
Net Income (Absorption Costing)	$ 4,000	$ 10,000

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	Year 1	Year 2
Units in beginning inventory	0	1,000
Units produced	9,000	9,000
Units sold	8,000	10,000

	Year 1	Year 2
Sales	$80,000	$100,000
Cost of goods sold	48,000	60,000
Gross margin	32,000	40,000
Selling and administrative expenses	28,000	30,000
Net operating income	$4,000	$10,000

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