Question - Variable and absorption costing, explaining operating income differences. Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2008 are:
|
April
|
May
|
|
Unit data
|
|
|
|
Beginning Inventory
|
0
|
150
|
|
Production
|
500
|
400
|
|
Sales
|
350
|
520
|
|
Variable Costs
|
|
|
|
Manufacturing Cost/unit produced
|
$10,000
|
$10,00
|
|
Operating (marketing) cost/unit sold
|
3,000
|
3,00
|
|
Fixed Cost
|
|
|
|
Manufacturing cost
|
$2,000,000
|
$2,000,000
|
|
Operating (marketing) cost
|
600,000
|
600,000
|
The selling price per Vehicle is $24,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 500 units. There are no prices, efficiency, or spending variances. Any production -volume variance is written off to cost of goods sold in the month in which it occurs.
1. Prepare April and May 2008 income Statements for Nascar Motor under (a) Variable Costing and (b) Absorption costing.
2. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption.