Introduction

Variable and absorption costing methods can be used to prepare income statements for a company. The results of the income statement can vary depending on the type of method used; therefore, it is important for the managerial accountant to understand how to use both of these methods. In this assignment you will practice preparing an income statement for an aircraft manufacturing company using both absorption and variable costing.

Instructions

After you have completed the assigned reading for this module,download this worksheet. The worksheet contains information about Ace Manufacturing and a template for creating Ace's income statements. Complete this assignment by completing the following elements on the worksheet:

1. Variable Costing Contribution Form Income Statement
2. Absorption Costing Unit Product Cost
3. Absorption Costing Income Statement
4. Essay explaining the difference between the two costing methods.

Instructions January February March Use the information below to prepare an income statement using both variable and absorption costing methods. You will need to complete "Absoprtion Costing Unit Product Variable expenses: Cost" in order to complete both income statements. Be sure to fill in all empty boxes with the appropriate text or value. When you are done, answer the questions below. Total variable expenses Ace Manufacturing Contribution margin Per Aircraft Per Month Fixed expenses: Selling Price $150,000 Direct Materials $25,000 Direct Labor $4,000 Total fixed expenses Variable Manufacturing Overhead $1,000 Net operating income (loss) Fixed Manufacturing Overhead $80,000 Variable selling and administrative expenses $15,000 Absorption Costing Unit Product Cost Fixed selling and administrative expenses $25,000 January February March Direct materials Ace Manufacturing Direct labor January February March Variable manufacturing overhead Beginning Inventory O Fixed manufacturing overhead Units sold HIHN 1 Units produced Absorption Costing Unit Product Cost Ending Inventory Absorption Costing Income Statement January February March Selling and Administrative Expenses January February March Variable selling and administrative expenses $15,000 $15,000 $75,000 Gross Margin Fixed selling and administrative expenses $25,000 $25,000 $25,000 Total selling and administrative expenses $40,000 $40,000 $100,000 Net operating income In the space below, briefly explain the difference between the outcomes of using variable and absorption costing. Why is there a difference? When should you use each method? Sheet1 +