Full vs. Variable Costing Security Technology Inc. (STI) is a manufacturer of an electroniccontrol system used in the manufacture of certain special-duty auto transmissions used primarilyfor police and military applications. The part sells for $55 per unit and had sales of 24,000 units inthe current year, 2018. STI has no inventory on hand at the beginning of 2018 and is projecting salesof 26,000 units in 2019. STI is planning the same production level for 2019 as in 2018, 25,000 units.The variable manufacturing costs for STI are $16, and the variable selling costs are only $.50 per unit.The fixed manufacturing costs are $200,000 per year, and the fixed selling costs are $500 per year.Required1. Prepare an income statement for each year using full costing.2. Prepare an income statement for each year using variable costing.3. Prepare a reconciliation and explanation of the difference each year in the operating income resultingfrom the full and variable costing methods.
Full vs. Variable Costing Security Technology Inc. (STI) is a manufacturer of an electronic
control system used in the manufacture of certain special-duty auto transmissions used primarily
for police and military applications. The part sells for $55 per unit and had sales of 24,000 units in
the current year, 2018. STI has no inventory on hand at the beginning of 2018 and is projecting sales
of 26,000 units in 2019. STI is planning the same production level for 2019 as in 2018, 25,000 units.
The variable
The fixed manufacturing costs are $200,000 per year, and the fixed selling costs are $500 per year.
Required
1. Prepare an income statement for each year using full costing.
2. Prepare an income statement for each year using variable costing.
3. Prepare a reconciliation and explanation of the difference each year in the operating income resulting
from the full and variable costing methods.
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