Bird’s Eye View manufactures satellite dishes used in residential and commercial installations for satellite-broadcasted television. For each unit, the following costs apply: $50 for direct material, $100 for direct labor, and $60 for variable overhead. The company’s annual fixed overhead cost is $450,000; it uses expected capacity of 7,500 units produced as the basis for applying fixed overhead to products. A commission of 10 percent of the selling price is paid on each unit sold. Annual fixed selling and administrative expenses are $108,000. The following additional information is available:

                                                Year 1        Year 2 

Selling price per unit            $500        $500 

Number of units sold             6,000     7,200 

Number of units produced  7,500       6,600 

Beginning inventory (units)    4,500    6,000 

Ending inventory (units)          6,000         ? 

a. Prepare pre-tax income statements under absorption and variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. 

b. Prepare pre-tax income statements under variable costing for Year 1 and Year 2, with any volume variance being charged to Cost of Goods Sold. 

c. Reconcile the differences in income for the two methods.

Answer rating: 100% (QA)

ab INCOME STATEMENT AS PER ABSORPTION COSTING Year 1 Year 2 Sales 3000000 3600000 Lesscost of goods ... View the full answer