Absorption Costing Unit Product Cost | |
Direct Material | $ 48.00 | |
Inventory | $ 2.00 | |
Fixed Manufacturing Overhead | $ 30.00 | |
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Total Absorption Costing Unit Product Cost | $80.00 |
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Variable Costing Unit Product Cost | |
Direct Material | $ 48.00 | |
Variable Manufacturing Overhead | $ 2.00 | |
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Total Variable Costing Unit Product Cost | $50.00 |
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Absorption Costing Income Statement | |
Sales | $1,500,000.00 | |
Cost of Goods Sold | $ 800,000.00 | |
Gross Margin | $ 700,000.00 | |
Selling and Administration Expense | $650,000.00 | |
Net Operating Income (Loss) | | | | | $50,000.00 |
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Variable Costing Income Statement | |
Sales | $ 1,500,000.00 | |
Variable Expense: | | |
Variable Cost of Goods Sold | $ 500,000.00 | |
Variable Selling and Administration | $ 180,000.00 | |
Total Variable Expense: | $ 680,000.00 | |
Contribution Margin | $ 820,000.00 | |
Fixed Expense: | | |
Fixed Manufacturing Overhead | $ 360,000.00 | |
Fixed Selling and Administration | $ 470,000.00 | |
Total Fixed Expense: | $ 830,000.00 | |
Net Operating Income (Loss) | ($10,000) |
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Reconciliation of Variable and Absorption Costing Net Income | |
Variable Costing Net Operating Income | $ (10,000.00) | |
Fixed Manufacturing Overhead Cost (2000 units x $30) | $ 60,000.00 | |
Absorption Costing Net Operating Income | $ 50,000.00 |
Assume that the company must obtain additional financing in order to continue operations. As a member of top management, would you prefer to rely n the statement in (b) above or in (3) above when meeting with a group of prospective investors?
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