Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations: Prior Year Current Year Sales (000s) 2,900 units 5,500 units Production (000s) 4,200 units 4,200 units Production cost Factory—variable (per unit) $ 0.60 $ 0.60 —fixed (000s) $ 2,100 $ 2,100 Marketing—variable (per unit) $ 0.40 $ 0.40 Administrative—fixed (000s) $ 500 $ 500 Required: 1. Prepare an income statement for each year based on full costing. 2. Prepare an income statement for each year based on variable costing. 3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.
Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations: Prior Year Current Year Sales (000s) 2,900 units 5,500 units Production (000s) 4,200 units 4,200 units Production cost Factory—variable (per unit) $ 0.60 $ 0.60 —fixed (000s) $ 2,100 $ 2,100 Marketing—variable (per unit) $ 0.40 $ 0.40 Administrative—fixed (000s) $ 500 $ 500 Required: 1. Prepare an income statement for each year based on full costing. 2. Prepare an income statement for each year based on variable costing. 3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in the prior year. These data summarize the current and prior year operations:
| Prior Year | Current Year | |||
|---|---|---|---|---|
| Sales (000s) | 2,900 | units | 5,500 | units |
| Production (000s) | 4,200 | units | 4,200 | units |
| Production cost | ||||
| Factory—variable (per unit) | $ 0.60 | $ 0.60 | ||
| —fixed (000s) | $ 2,100 | $ 2,100 | ||
| Marketing—variable (per unit) | $ 0.40 | $ 0.40 | ||
| Administrative—fixed (000s) | $ 500 | $ 500 |
Required:
1. Prepare an income statement for each year based on full costing.
2. Prepare an income statement for each year based on variable costing.
3. Prepare a reconciliation of the difference each year in the operating income resulting from using the full costing method and variable costing method.
Transcribed Image Text:Sales
Less: Cost of goods sold
Available for sale
Cost of goods sold
Contribution margin
Less: Selling and administrative costs
Transcribed Image Text:Sales
Less: Cost of goods sold
Beginning inventory
Cost of goods produced
Available for sale
Less: Ending inventory
Cost of goods sold
Gross margin
Less: Selling and administrative costs
Variable
Fixed
Operating income
Full Costing
Income Statement
Prior Year
$
8,700
Current Year
$
16,500
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Step 1: Defining Absorption Costing/ Full Costing and Variable costing
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