Problem: Direct vs Absorption Costing - Broadcast Inc.

Broadcast Inc. manufactures and sells a single product.Current year sales volume was 50,000 units at a selling price of $86 per unit. Direct material anddirect labour amount to $28 per unit. Variable manufacturing overhead costs were $13 per unit plus fixed costs of $455,000 per year. There were no beginning inventories and 65,000 unitswere produced during the year. Variable selling, general and administrative costs were $4.50 per unit sold plus fixed costs of $765,000 for the year.

REQUIRED:

• Prepare an absorption costing income statement for the year.
• Prepare a contribution costing income statement for the year.
• Reconcile the difference between the two statements, absorption and contribution, andexplain why net income is different between the two costing approaches