Chapter 21, Problem E21A.50E

To determine

Concept Introduction:

Absorption costing: Absorption costing is one of the methods of calculation of product costs. Under this method, the fixed manufacturing overheads are also considered as part of the product cost with direct costs. The unit product cost includes direct material, direct labor, and variable overhead and allocated amount of fixed overhead. Under this method, the income statement calculates Gross margin and net operating income.

1. To prepare: The Income Statement using absorption costing.

To determine

2. To determine: The unit product using absorption costing and the total cost of the 1000 units in the ending finished goods inventory.

To determine

3. To compare: The total cost of the 1000 units in the ending finished goods inventory under variable and absorption costing method.