Question #1
Consider the following information:
Q1
Q2
Q3
Beginning inventory (units)
0
2,000
1,000
Budgeted units to be produced
300,000
300,000
300,000
Actual units produced
296,000
301,000
302,000
Units sold
294,000
302,000
302,000
Variable manufacturing costs per unit produced
$40
$40
$40
Variable selling costs per unit sold
$10
$10
$10
Fixed manufacturing costs
$3,000,000
$3,000,000
$3,000,000
Fixed selling costs
$1,000,000
$1,000,000
$1,000,000
Selling price per unit
$70
$70
$70
There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs.
a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing.
b) Explain the differences in operating income between the two costing systems for each quarter. Be specific!
