The Austen Company uses an$$ absorption$-$costing system based on standard costs. Variable manufacturing cost consists of direct material cost of $ $3\mathrm{.}00$ per unit and other variable manufacturing costs of $ $1\mathrm{.}20$ per unit. The standard production rate is $10$ units per$$ machine$-$hour. Total budgeted and actual fixed manufacturing overhead costs are $ $480000.$ Fixed manufacturing overhead is allocated at $ $8$ per$$ machine$-$hour based on fixed manufacturing costs of $ $480000-$: $60$ comma $000$machine$-$hours, which is the level Austen uses as its denominator level. The selling price is $ $7$ per unit. Variable operating$($nonmanufacturing$)$ cost$,$ which is driven by units$$ sold, is $ $1$ per unit. Fixed operating$($nonmanufacturing$)$ costs are $ $55$ comma $000.$ Beginning inventory in $2020$ is $40000$units; ending inventory is $45$ comma $000$ units. Sales in $2020$ are $535000$ units. The same standard unit costs persisted throughout $2019$ and $2020.$ For$$ simplicity, assume that there are no$$ price, spending, or efficiency variances.

Requirement $1.$ Prepare an income statement for $2020$ assuming that the$$ production$-$volume variance is written off at$$ year$-$end as an adjustment to cost of goods sold.

Complete the top half of the income statement$$ first, then complete the bottom portion. $($Label the variance as favorable$($F$)$ or unfavorable$($U$).)$

Requirement $2.$ The president has heard about variable costing. She asks you to recast the $2020$ statement as it would appear under variable costing.

Another term for a variable costing income statement is a contribution margin income statement. Recall that Contribution Margin$=$ Revenues$-$ Variable Costs. Therefore the top half of the statement will be the revenue and variable cost accounts.

Complete the top half of the income statement. The variable costing income statement lists variable costs separate from fixed$$ costs, therefore, in the cost of goods sold$$ section, we need to compute the beginning and ending inventory amounts only using variable costs. Amounts that do not change between different types of income statements have been entered in for you.

Absorption costing

Gross margin