O'NeillO'Neill's Products manufactures a single product. Cost, sales, and production information for the company and its single product is as follows: Selling price per unit is $54
Variable manufacturing costs per unit manufactured includes direct materials DM, direct labor DL, and variable MOH $27.
Variable operating expenses per unit sold $4
Fixed manufacturing overhead (MOH) in total for the year $120,000
Fixed operating expenses in total for the year $92,000
Units manufactured and sold for the year 12,000 units

Required:
a. Prepare an income statement for the upcoming year using variable costing.
b. Prepare an income statement for the upcoming year using absorption costing.

Instructions are below.

Explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

The variable costing method incorporates all variable production costs (direct material, direct labor, and variable overhead).

Absorption costing income statement:

Sales= 12,000*54= 648,000

COGS= (12,000*27) + 120,000= (444,000)

Gross profit= 204,000

Total operating expenses= (12,000*4) + 92,000= (140,000)

Net operating income= 64,000

Variable costing income statement:

Sales= 648,000

Total variable cost= 12,000*(27 + 4)= (372,000)

Total contribution margin= 276,000

Fixed manufacturing overhead= (120,000)

Fixed operating expenses= (92,000)

Net operating income= 64,000

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