Question 2

The income statement for Tiger Co. for 2015 is summarized as follows:

Sales (200,000 units) $3,000,000

Variable costs 1,000,000

Contribution margin 2,000,000

Fixed costs (80% manufacturing related) 500,000

Operating income $1,500,000

Variable costs include:

Direct materials $1.50/unit $300,000

Direct labour $2.00/unit $400,000

Variable MOH $1.25/unit $250,000

Variable selling & admin $0.25/unit $50,000

There were 0 units in beginning inventory, and 50,000 units in ending inventory.

Required -

a) Calculate the total cost of ending inventory for 2015 under the variable costing method.

b) Calculate the total cost of ending inventory for 2015 under the absorption costing method.

c) Create an absorption costing income statement for Tiger Co for 2015.