Menu Variable and Absorption Costing Grant Company sells its product for $57 per
ID: 2547163 • Letter: M
Question
Menu Variable and Absorption Costing Grant Company sells its product for $57 per unit. Variable manufacturing costs per unit are $35, and fixed manufacturing costs at the normal operating level of 18,000 units are $90,000. Variable selling expenses are $5 per unit sold. Fixed administrative expenses total $155.000. Grant had 7,000 units at a per-unit cost of $40 in beginning inventory in 2016. During 2016, the company produced 18,000 units and sold 20,000. Would net income for Grant Company in 2016 be higher if calculated using variable costing or using absorption costing? Calculate reported income using each method. Do not use negative signs with any answers. Absorption Costing Income Statement Sales Cost of Goods Sold: Beginning Inventory Variable Costs 0 Fixed Costs 0 Less: Ending Inventory Cost of Goods Sold Gross profit Selling expense Administrative expense Net IncomeExplanation / Answer
ABOSRPTION COSTING INCOME STATEMENT Sales 1140000 Cost of goods sold Beginning inventory 280000 Variable cost 630000 Fixed cost 90000 Less: Ending Inventory 200000 Cost of goods sold 800,000 Gross profit 340000 Selling expense 100000 Admin expense 155000 Net profit 85000 VARIABLE COSTING INCOME STATEMENT Sales 1140000 Cost of goods sold Beginning inventory 245000 Variable cost 630000 Less: Ending Inventory 175000 Vraiable cost of goods sold 800,000 Vraiable selling expense 100,000 Contribution 240,000 Fixed cost: Manufacturing OH 90000 Admin expense 155000 Net profit -5000 Note: Beginning inventory in variable costing will be valued at Variable cost per unit only.