Problem 2.

28 Income Statements, Variable and Absorption Costing

Vladimir, Inc.

Required:

1. Units in ending inventory = Units, beginning inventory + Units produced − Units

sold
Units in ending inventory = 1,320 + 100,000 – 101,000
Units in ending inventory = 320

2.
 There would be a difference between absorption costing and variable costing
because of the inventory changes. During the current year, the inventory would
decrease by 1,000 units (1,320 – 320). Due to this situation the fixed overhead
will be overcharged in absorption costing income. Since the fixed overhead per
unit is $2.34 ($234,000 / 100,000), the difference between variable costing
income and absorption costing income is $2,340 ($2.34 x 1,000 units).

3. (a)

Vladimir Inc.
Variable-Costing Income Statement
For last year

Sales (101,000 x $29) $2,929,000

Less: Variable cost (101,000 x 20.75) (2,095,750)
Contribution margin $833,250
Less: Fixed cost
Fixed overhead ($234,000)
Fixed selling and administrative expenses (236,000)
Operating income $363,250

(b)

Vladimir Inc.
Absorption-Costing Income Statement
For last year

Sales (101,000 x $29) $2,929,000

Less: Cost of goods sold (101,000 x 23.09) (2,332,090)
Gross profit $596,910
Less: Fixed cost
Fixed selling and administrative expenses (236,000)
Operating income $360,910