Variable and absorption costing, explaining operating-income differences. EntertainMe Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows: JanuaryFebruaryMarchUnit data:Beginning inventory150150Production1,5001,4001,520Sales1,3501,4001,530Variable costs:$ 1,000$ 1,000$ 1,000Manufacturing cost per unit producedOperating (marketing) cost per unit sold800800800Fixed costs:Manufacturing costsOperating (marketing) costs$525,000$525,000$525,000$130,000$130,000$130,000 The selling price per unit is $3,300. The budgeted level of production used to calculate the budgeted fixedmanufacturing cost per unit is 1,500 units. There are no price, efficiency, or spending variances. Anyproduction-volume variance is written off to cost of goods sold in the month in which it occurs.1. Prepare income statements for EntertainMe in January, February, and March 2017 under (a) variablecosting and (b) absorption costing.2. Explain the difference in operating income for January, February, and March under variable costingand absorption costing.

Solution: Income Statement as per Variable costing Particulars January February March Sales…

Answered: January February March Unit data:…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Variable and absorption costing, explaining operating-income differences. EntertainMe Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows:

January
February
March
Unit data:
Beginning inventory
150
150
Production
1,500
1,400
1,520
Sales
1,350
1,400
1,530
Variable costs:
$ 1,000
$ 1,000
$ 1,000
Manufacturing cost per unit produced
Operating (marketing) cost per unit sold
800
800
800
Fixed costs:
Manufacturing costs
Operating (marketing) costs
$525,000
$525,000
$525,000
$130,000
$130,000
$130,000

The selling price per unit is $3,300. The budgeted level of production used to calculate the budgeted fixed
manufacturing cost per unit is 1,500 units. There are no price, 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 income statements for EntertainMe in January, February, and March 2017 under (a) variable
costing and (b) absorption costing.
2. Explain the difference in operating income for January, February, and March under variable costing
and absorption costing.

Definition Definition System of assigning an estimated cost to the product (instead of the actual cost) so that the product cost can be determined well in advance and the pricing of the product can be done on time. Since the actual cost cannot be predicted at the initial stage of the production process, the estimated cost is recorded in the books. Any deviation of the estimated cost of the actual cost is adjusted in the books at the end of the period.

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