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Variable and Absorption Costing

Grant Company sells its product for $$59$ per unit. Variable manufacturing costs per unit are $$36,$ and fixed manufacturing costs at the normal operating level of $18,000$ units are $$90,000.$ Variable selling expenses are $$7$ per unit sold. Fixed administrative expenses total $$155,000.$ Grant had $7,000$ units at a per$-$unit cost of $$41$ in beginning inventory in $2016.$ During $2016,$ the company produced $18,000$ units and sold $20,000.$ Would net income for Grant Company in $2016$ be higher if calculated using variable costing or using absorption costing?

Calculate reported income using each method.

Do not use negative signs with any answers.

Absorption Costing Income StatementSalesCost of Goods Sold:Beginning InventoryVariable CostsFixed CostsLess: Ending InventoryCost of Goods SoldContribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expenseContribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expenseAdministrative expenseNet Income

Variable Costing Income StatementSalesCost of Goods Sold:Beginning InventoryVariable CostsContribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expenseVariable cost of goods soldContribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expenseContribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expenseFixed costs:Contribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expenseAdministrative ExpenseTotal Fixed CostNet Income

Calculate reported income using each method.

Do not use negative signs with any answers.

Absorption Costing Income StatementSales

Cost of Goods Sold:Beginning Inventory

Variable Costs

Fixed Costs

Less: Ending Inventory

Cost of Goods Sold

Contribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expense

Contribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expense

Administrative expense

Net Income

Variable Costing Income StatementSales

Cost of Goods Sold:Beginning Inventory

Variable Costs

Contribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expense

Variable cost of goods sold

Contribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expense

Contribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expense

Fixed costs:Contribution marginGross profitLess: Ending inventoryManufacturing costSelling expenseVariable selling expense

Administrative Expense

Total Fixed Cost

Net Income

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