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		$1,200,000
Cost of goods sold:
Cost of goods manufactured	$800,000
Ending inventory	(200,000)
Total cost of goods sold		(600,000)
Gross profit		$600,000
Selling and administrative expenses		(290,000)
Operating income		$310,000

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
Sales		$1,200,000
Variable cost of goods sold:
Variable cost of goods manufactured	$560,000
Ending inventory	(140,000)