1. Reconsider Exhibits 13.3 and 13.4 on pp. 592 and 593. Suppose production in 20X1 was 14,500 units instead of 14,000 units, but sales remained at 16,000 units. Assume that the net variances for all variable manufacturing costs were €200,000, unfavorable. Regard these variances as adjustments to the standard cost of goods sold. Also assume that actual fixed costs were €1,570,000. Prepare income statements for 20X1 under variable costing and under absorption costing.

Exhibit 13.3

Exhibit 13.4

2. Explain why operating income was different under variable costing from what it was under absorption costing. Show your calculations.
3. Without regard to number 1, would variable costing or absorption costing give a manager more flexibility in influencing short-run operating income through production-scheduling decisions? Why?

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Sales, 14,000 and 16,000 computers, respectively Variable expenses: Variable manufacturing cost of goods sold Opening inventory, at standard variable costs of €300 Add: variable cost of goods manufactured at standard, 17,000 and 14,000 computers, respectively Available for sale, 17,000 computers in each year Deduct: ending inventory, at standard variable cost of €300 Variable manufacturing cost of goods sold Variable selling expenses, at 5% of sales Total variable expenses Contribution margin Fixed expenses: Fixed factory overhead Fixed selling and administrative expenses Total fixed expenses Operating income, variable costing *3,000 computers at €300 = €900,000. †1,000 computers at €300 = €300,000. (1) (2) (3) = (1)-(2) (4) (3) - (4) € - 5,100 €5,100 900* €4,200 350 €1,500 650 20X0 €7,000 4,550 €2,450 2,150 € 300 € 900 4,200 €5,100 300¹ €4,800 400 €1,500 650 20X1 €8,000 5,200 €2,800 2,150 € 650