Chapter 6, Problem 6.60BE

Prepare a variable costing income statement given an absorption costing income statement (Learning Objective 6)

Rathke Industries manufactures and sells a single product. The controller has prepared the following income statement for the most recent year:

1. 1. The company produced 14,000 units and sold 8,500 units during the year ending December 31. Fixed manufacturing overhead (MOH) for the year was $266,000, while fixed operating expenses were $58,000. The company had no beginning inventory.

Requirements

1. 1. Will the company’s operating income under variable costing be higher, lower, or the same as its operating income under absorption costing? Why?
2. 2. Project the company’s operating income under variable costing without preparing a variable costing income statement.
3. 3. Prepare a variable costing income statement for the year.