Variable and Absorption Costing

Sample Problem

The following data were taken from XYZ Company for the years ending December 31, 2017 and 2018:

In units 2017 2018

Inventory, Jan 1 - 7,000
Production 20,000 18,000
Available for sale 20,000 25,000
Units sold 13,000 23,000
Inventory Dec 31 7,000 2,000

Sales (20 per unit) 260,000 460,000

Variable mfg cost (7.50/unit) 150,000 135,000
Fixed mfg cost 50,000 54,000
Selling and admin expense 45,000 75,000

Selling and admin expense are 60% fixed and 40% variable.

Required:
Prepare a comparative income statements for 2017 and 2018 using
a Variable costing
b Absorption costing
c Reconcile the net income difference