Chapter 21, Problem P21A.66BPGB

To determine

Income Statements under variable and absorption costing: There are two different ways to prepare income statement. The conventional way which is generally seen in the financial statement as well is preparing income statement under absorption costing. In the absorption costing, there is not segregation of the costs on the basis of fixed costs and variable cost.

The other way to prepare income statement is variable costing. Under this method or costing, the expenses are segregated on the basis of fixed and variable.

Requirement 1

To determine:

The product cost under cost absorption costing and under variable costing.

To determine

Requirement 2:

To prepare:

Income statements for January under –

a. Absorption costing

b. Variable costing

To determine

Requirement 3:

To determine:

Higher Operating income for January under absorption costing and variable costing.