Refer to the information for CoverUp in PB5-4 Additional information for CoverUp’s most recent year of operations follows:

Required:

1. Without any calculations, explain whether CoverUp’s income will he higher with full absorption costing or variable costing.

2. Prepare a full absorption costing income statement and a variable costing income statement for CoverUp. Assume there was no beginning inventory.

3. Compute the difference in profit between full absorption costing and variable costing. Reconcile the difference.

Data from B5-4

CoverUp, Inc., produces one model of seat cover. Partial information for the company follows.

Transcribed Image Text:

Number of units produced Number of units sold Sales price per unit 3,000 2,800 $ 30.00 Direct materials per unit 3.00 Direct labor per unit 2.00 Variable manufacturing overhead per unit 1.50 Fixed manufacturing overhead ($15,000/3,000 units) 5.00 Variable selling expenses ($1 per unit sold) 2,800.00 Fixed general and administrative expenses 20,250.00