Hayek Bikes prepares the income statement under variable costing for its managerial reports, and it prepares the income statement under absorption costing for external reporting. For its first month of operations, 375 bikes were produced and 225 were sold; this left 150 bikes in ending inventory. The income statement information under variable costing follows.
Sales (225 × $1.600).......................................................$360,000
Variable production cost (225 × $625)....................................140,625
Variable selling and administrative expenses (225 × $65)...............14,625
Contribution margin.........................................................204,750
Fixed overhead cost..........................................................56,250
Fixed selling and administrative expense.................................75,000
Net income...................................................................$ 73,500
1. Prepare this company's income statement for its first month of operations under absorption costing.
2. Explain the difference in income between the variable costing and absorption costing income statement.