Varilux manufactures a single product and sells it for $ 10 per unit. At the beginning of the year, there were 1,000 units in inventory. Upon further investigation, you discover that units produced last year had $ 3 of fixed manufacturing costs and $ 2 of variable manufacturing costs. During the year, Varilux produced 10,000 units of product. Each unit produced generated $ 3 of variable manufacturing cost. Total fixed manufacturing cost for the current year was $ 40,000. Selling and administrative costs consisted of $ 12,000 of variable costs and $ 18,000 of fixed costs. There were no inventories at the end of the year.

Prepare two income statements for the current year: one on a variable cost basis and the other on an absorption cost basis. Explain any difference between the two net income numbers and provide calculations supporting your explanation of the difference.

  • CreatedDecember 15, 2014
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