Problem 6-20A Prepare and Reconcile Variable Costing Statements [LO1, LO2, LO3]

Linden Company manufactures and sells a single product. Cost data for the product follow:

Variable costs per unit:
Direct materials	$	4
Direct labor		11
Variable factory overhead		2
Variable selling and administrative		2
Total variable costs per unit	$	19
Fixed costs per month:
Fixed manufacturing overhead	$	90,000
Fixed selling and administrative		163,000
Total fixed cost per month	$	253,000

The product sells for $54 per unit. Production and sales data for May and June, the first two months of operations, are as follows:

	Units Produced	Units Sold
May	30,000	26,000
June	30,000	34,000

Income statements prepared by the accounting department, using absorption costing, are presented below:

	May		June
Sales	$	1,404,000	$	1,836,000
Cost of goods sold		520,000		680,000
Gross margin		884,000		1,156,000
Selling and administrative expenses		215,000		231,000
Net operating income	$	669,000	$	925,000

Required:

1.	Determine the unit product cost under absorption costing and variable costing.

		Unit Product Cost
Absorption costing
Variable costing

2.	Prepare contribution format variable costing income statements for May and June. (Input all amounts as positive values except losses which should be indicated by a minus sign.)

Variable Costing Income Statement
	May	June
(Click to select)SalesFixed selling and administrative expensesVariable cost of goods soldNet operating income (loss)Fixed manufacturing overheadContribution marginVariable selling and administrative expenses	$	$
Variable expenses:
(Click to select)SalesFixed manufacturing overheadVariable cost of goods soldDirect materialsFixed selling and administrative expensesNet operating income (loss)Contribution margin
(Click to select)Contribution marginSalesDirect materialsNet operating income (loss)Fixed manufacturing overheadFixed selling and administrative expensesVariable selling and administrative expenses
Total variable expenses
(Click to select)Gross marginContribution margin
Fixed expenses:
(Click to select)SalesVariable selling and administrative expensesDirect materialsNet operating income (loss)Contribution marginVariable cost of goods soldFixed manufacturing overhead
(Click to select)Variable selling and administrative expensesContribution marginVariable cost of goods soldDirect materialsFixed selling and administrative expensesNet operating income (loss)Sales
Total fixed expenses
(Click to select)Net operating lossNet operating income	$	$

3.	Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
	May	June
Variable costing net operating income (loss)	$	$
Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing
Absorption costing net operating income (loss)	$	$