Morey Company has just completed its first year of operations. The company€™s absorption costing income statement for the year appears below:

The company€™s selling and administrative expenses consist of $300,000 per year in fixed expenses and $3 per unit sold in variable expenses. The company€™s $21 per unit product cost given above is computed as follows:
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Fixed manufacturing overhead ($250,000 ÷ 50,000 units) . . . . . . . 5
Unit product cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21

Required:
1. Redo the company€™s income statement in the contribution format using variable costing.
2. Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statementabove.

Transcribed Image Text:

Morey Company Income Statement Sales (40,000 units at $33.75 per unit) Cost of goods sold: $1,350,000 Beginning inventory Add cost of goods manufactured 0 Goods available for sale. A Less ending inventory (10,000 units at $21 per unit) 1,050,000 Gross margin Selling and administrative expenses Net operating income. 210,000 840,000 510,000 420,000 $ 90,000