Absorption costing-variable costing income statements

Duif Company’s absorption costing income statement for the last year of operations is presented below:

Sales…………………………………………………$70,000

Less cost of goods sold:

Beginning inventory………………………………………. 0
Add cost of goods manufactured………………48,000
Goods available for sale………………………….48,000
Less ending inventory………………………………6,000
Cost of goods sold………………………………..42,000
Gross margin……………………………………….28,000
Less selling & admin. expenses………………..25,000
Net operating income…………………………..$ 3,000

Data on units produced and sold for the year are given below:

Units in beginning inventory……………………………..0
Units produced……………………………………….8,000
Units sold………………………………………………7,000

Fixed factory overhead totaled $16,000 for the year. This overhead was applied to products at a rate of $2 per unit. Variable selling and administrative expenses were $3 per unit sold.

Required: Prepare a new income statement for the year using variable costing. Comment on the differences between the absorption costing and the variable costing income statements.

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