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.

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.