Hermione Corporation is a newly formed manufacturing company expected to begin operations on January 2, 2013. The company has obtained 4,000 units of the product it intends to manufacture from a company that went out of business on December 31, 2012. These units were purchased at a cost of $5 per unit. The estimated production and nonmanufacturing costs are as follows:
Variable costs per unit
Manufacturing........................... $7.50
Selling and administrative............. $1.00
Fixed costs
Manufacturing ........................$80,000
Selling and administrative ..........$55,000
Sales for the upcoming year (2013) are forecasted to total 96,000 units at a price of $12 per unit. The company plans to produce 100,000 units during 2013. Plant capacity is 100,000 units.
REQUIRED
A. Prepare an absorption costing income statement and a variable costing income statement for the year ended December 31, 2013, assuming 100,000 units are produced and 96,000 units are sold. The company uses the FIFO method of inventory management.
B. Prepare reconciliation between the net incomes obtained from the two approaches