The local battery factory company specializes in manufacturing a standardized battery suitable for various vehicles. The Accounts
The local battery factory company specializes in manufacturing a standardized battery suitable for various vehicles. The Accounts Manager has compiled an income statement for the most recent year under absorption costing, which concluded on December 31:
- Sales Revenue: RM2,496,000
- Cost of Goods Sold: RM1,200,000
- Gross Profit: RM1,296,000
- Operating Expenses: RM880,000
- Operating Income: RM416,000
During the year, the company produced 30,000 units and sold 18,000 units of their battery. The fixed manufacturing overhead (MOH) for the year amounted to RM130,000, and fixed operating expenses totaled RM560,000. The cost per unit for direct materials and direct labor were RM35 and RM28 respectively. It is worth noting that the company did not have any beginning inventory.
- 1. Will the company's operating income be higher, lower, or the same under variable costing compared to absorption costing? Why?
- 2. Project the company's operating income under variable costing without preparing a comprehensive variable costing income statement.
- 3. Prepare a variable costing income statement for the year.