Problem:
Succulent Juice Company manufactures and sells premium tomato juice by the gallon. Succulent just finished its first year of operations. The following data relates to this first year of operations.
| Number of Gallons Produced |
80,000 |
| Number of Gallons Sold |
70,000 |
| Sales Price |
$3.00/gallon |
| Unit Product Cost (variable costing) |
$1.45/gallon |
| Contribution Margin |
$84,000 |
| Total Fixed Manufacturing Overhead |
$? |
| Total Fixed Selling & Administrative |
$25,000 |
| Variable Selling & Administrative |
$? |
| Inventory value under absorption costing |
$29,500 |
Required:
Question 1: Prepare an Income statement for Succulent using the Absorption Costing Method. (Hints: How many units were in inventory? What was the cost per unit? Why is the CM only $84,000?)
Question 2: Explain in one or two sentences, the key differences between the net income under Absorption and the net income under Variable costing. Determine the variable costing net income. Prepare a variable costing income statement.
Note: Be sure to show how you arrived at your answer.