The selling price per vehicle is 24000 The budgeted level of

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 price, efficiency, or rate variances. Any produc- tion-volume variance is written off to cost of goods sold in the month in which it occurs.
Required
1. Prepare April and May 2015 statements of comprehensive income for TC Motors 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 costing.

Chapter 8 Nascar Motors assem which unit costs are are: bles and sells motor vehicles. It uses an actual costing system in calculated each month. Data relating to April and May of 2016 1. April May Units Data: Beginning inventory Production Sales (Units) Selling price per vehicle 500 350 $24,000 150 400 520 $24,000 Variable cost data: Manufacturing costs per unit produced $10,000 Marketing costs per unit sold $10,000 $3,000 $3,000 Fixed cost data: Manufacturing costs Marketing costs 2,000,000 $600,000 $2,000,000 $600,000 Required i. Prepare the income statement for Nascar Motors in April and May of 2016 under: a. Variable costing. b. Absorption costing. Prepare a numerical reconciliation of the variable and absorption costing operating income figures for each month. ii. ii. Provide a brief explanation of the difference between the operating income for each month under variable costing and absorption costing

Solution

Construct The Variable Costing Income Statement under FIFO April May Sales 8,400,000 12,480,000 Less: Variable cost    variable cost of goods sold 3,500,000 5,200,000    Variable selling expense 1,050,000 4,550,000 1,560,000 6,760,000 Contribution margin 3,850,000 5,720,000 Fixed expense:    Fixed Manufacturing overheads 2,000,000 2,000,000    Fixed selling expense 600,000 600,000 Net operating Income 1,250,000 3,120,000 Construct The Absorption Costing Unit Product Cost April May Variable Manufacturing Cost 10,000 10,000 Fixed Manufacturing overheads 4,000.00 5,000.00 Absorption costing unit prroduct cost 14,000.00 15,000.00 Construct the Absorption Costing Income Statement Under FIFO April May Sales $8,400,000 $12,480,000 Cost of Goods sold 4900000 7650000 Gross Margin $3,500,000 $4,830,000 Selling and distribution expense 1,650,000 2,160,000 Net operating income 1,850,000 2,670,000 Reconciliation Statement: April Income as per Vvariable costing 1250000 Add: Fixed OH deferred 600000 (150 units @4000) Income as per Absorption costing 1850000 may: Income as per Absorption costing 3120000 Less: Fixed oh released 600000 Add: Fixed OH deferred for 30 units 150000 (30 units @ 5000) Income as per Absorption costing 2670000 The difference in income of two costing is due to ending inventory. When the ending inventory increases the fixed OH deferrred in Absorption costing, resulting in higher income than variable costing. When the level of ending inventory falls, the fixed OH released resulting in lower income than variable costing.