Parry Manufacturing Company makes a product that sells for $80 per unit. Manufacturing costs for the product amount to $30 per unit variable, and $120,000 fixed. During the current accounting period, Parry made 4,000 units of the product and sold 3,500 units. Selling and administrative expenses were zero.
a. Prepare an absorption costing income statement.
b. Prepare a variable costing income statement.
c. Explain why the amount of net income on the absorption costing income statement differs from the amount of net income on the variable costing income statement. Your answer should include the amount of the inventory balance that would exist under the two costing approaches.