Variable Costing, Absorption Costing

During its first year of operations, Snobegon, Inc. (located in Lake Snobegon, Minnesota), produced 40,100 plastic snow scoops. Snow scoops are oversized shovel-type scoops that are used to push snow away. Unit sales were 38,300 scoops. Fixed overhead was applied at $0.70 per unit produced. Fixed overhead was underapplied by $2,800. This fixed overhead variance was closed to Cost of Goods Sold. There was no variable overhead variance. The results of the years operations are as follows (on an absorption-costing basis):

Sales (38,300 units @ $20)	$766,000
Less: Cost of goods sold	547,560
Gross margin	$218,440
Less: Selling and administrative expenses (all fixed)	185,500
Operating income	$ 32,940

Required:

1. Calculate the cost of the firms ending inventory under absorption costing. Round unit cost to five decimal places. Round your final answer to the nearest dollar. $

What is the cost of the ending inventory under variable costing? Round unit cost to five decimal places. Round your final answer to the nearest dollar. $

Feedback

Take unit cost under absorption less fixed overhead amount per unit to get variable cost per unit for variable costing.

2. Prepare a variable-costing income statement. Round the unit cost to five decimal places, when required. Round your final answers to the nearest dollar. Use the rounded values in subsequent computations.

Snobegon, Inc.
Variable-Costing Income Statement
For the First Year of Operations
Sales	$
Less: Variable cost of goods sold
Contribution margin	$
Less:
Fixed overhead
Fixed selling and administrative expenses
Operating income	$

Feedback

Use a contribution margin format income statement that groups costs according to behavior (variable and fixed)

What is the difference between the two income figures? $