Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 Sales $1,125,000 Cost of goods sold: Cost of goods manufactured $340,000 Ending inventory (210,000) Total cost of goods sold (630,000) Gross profit $495,000 Selling and administrative expenses (275,000) Operating income $220,000 Variable statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin. Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 $1,125,000 Sales Variable cost of goods sold: Variable cost of goods manufactured Ending inventory Total variable cost of goods sold $600,000 (150,000) (450,000) Variable selling and administrative expenses (210,000) $465,000 Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs $240,000 65,000 (305,000) $160,000 Operating Income Method Comparison Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company's sales price per unit is $75, and the number of units in ending Inventory is 5,000. There was no beginning inventory Item Amount Number of units sold Variable sales and administrative cost per unit Number of units manufactured Variable cost of goods manufactured per unit Fixed manufacturing cost per unit Check My Won Review the definitions of the items in the table, and think backwards from one of the income statements to get the desired values Manufacturing Decisions