Assume a company has fixed overhead of $12,000 an

materials cost is $3 per unit, direct labor is $15 per un

overhead is $7 per unit.
Finished Goods Inventory (Product )
$ per unit # of units Absorption
Materials $3.00 10000
Labor $15.00 10000
Variable OH $7.00 10000
Fixed OH $1.20 10000
Total FGI $0.00

all inventory sold

Income Statement
$ per unit # of units Absorption
Sales $33.00 10000
COGS $0.00
Gross profit $0.00
Fixed OH
Net income $0.00

8000 units sold, 2000 units left

Cost of Goods Sold
$ per unit # of units Absorption
Materials $3.00 8000
Labor $15.00 8000
Variable OH $7.00 8000
Fixed OH $1.20 8000
Total COGS $0.00
Ending Inventory
$ per unit # of units Absorption
Materials $3.00 2000
Labor $15.00 2000
Variable OH $7.00 2000
Fixed OH $1.20 2000
Total EI $0.00
Income Statement
$ per unit # of units Absorption
Sales $33.00 8000
COGS $0.00
Gross profit $0.00
Fixed OH
Net income $0.00
ead of $12,000 and manufactures 10,000 units. Direct
abor is $15 per unit, and the variable manufacturing

Variable

$0.00

Variable

$0.00
$0.00

$0.00

Variable

$0.00

Variable

$0.00

Variable

$0.00
$0.00
$0.00
 Direct
uring
Assume a company has fixed overhead of $12,000 an
materials cost is $3 per unit, direct labor is $15 per un
overhead is $7 per unit.
Finished Goods Inventory
$ per unit # of units Absorption
Materials $3.00 10000 $30,000.00
Labor $15.00 10000 $150,000.00
Variable OH $7.00 10000 $70,000.00
Fixed OH $1.20 10000 $12,000.00
Total FGI $262,000.00

all inventory sold

Income Statement
$ per unit # of units Absorption
Sales $33.00 10000 $330,000.00
COGS $262,000.00
Gross profit $68,000.00
Fixed OH $0.00
Net income $68,000.00

8000 units sold, 2000 units left

Cost of Goods Sold
$ per unit # of units Absorption
Materials $3.00 8000 $24,000.00
Labor $15.00 8000 $120,000.00
Variable OH $7.00 8000 $56,000.00
Fixed OH $1.20 8000 $9,600.00
Total COGS $209,600.00
Ending Inventory
$ per unit # of units Absorption
Materials $3.00 2000 $6,000.00
Labor $15.00 2000 $30,000.00
Variable OH $7.00 2000 $14,000.00
Fixed OH $1.20 2000 $2,400.00
Total EI $52,400.00
Income Statement
$ per unit # of units Absorption
Sales $33.00 8000 $264,000.00
COGS $209,600.00
Gross profit $54,400.00
Fixed OH $0.00
Net income $54,400.00
ead of $12,000 and manufactures 10,000 units. Direct
abor is $15 per unit, and the variable manufacturing

Variable
$30,000.00
$150,000.00
$70,000.00

$250,000.00

Variable
$330,000.00
$250,000.00
$80,000.00
$12,000.00
$68,000.00

Variable
$24,000.00
$120,000.00
$56,000.00

$200,000.00

Variable
$6,000.00
$30,000.00
$14,000.00

$50,000.00

Variable
$264,000.00
$200,000.00
$64,000.00
$12,000.00
$52,000.00
 Direct
uring
 Projected Income Statement (Absorption)
$ per unit # of units Year 1 # of units
Sales $15.00
COGS
Beginning inventory
COGManufactured
DM, DL, MOH $5.00
Fixed MOH $3.00
COG Available for Sale $8.00
Ending inventory
Total COGS
Gross margin
Sales and Admin expenses
Fixed sales and admin exp
Variable Saled and Admin ex $1.00
Net income

Projected Income Statement (Variable)

$ per unit # of units Year 1 # of units
Sales $15.00
Variable Expenses
Beginning inventory
Variable MOH $5.00
COG Available for Sale $5.00
Ending inventory $5.00
VC to Manufacturing
Variable selling and ad $1.00
Total COGS
Contribution margin
Fixed expenses
Fixed OH
Fixed selling and admin exp
Net income

Reconciliation
Year 1
Income under Variable costing
Add: Fixed MOH in Ending Inventory
Less: Fixed MOH in Beginning Inventory
Income under Absorption costing
(Absorption)
Year 2 # of units Year 3

(Variable)
Year 2 # of units Year 3

Year 2 Year 3
 Projected Income Statement (Absorption)
$ per unit # of units Year 1 # of units
Sales $15.00 5000 $75,000.00 4000
COGS
Beginning inventory $0.00
COGManufactured
DM, DL, MOH $5.00 5000 $25,000.00 5000
Fixed MOH $3.00 5000 $15,000.00 5000
COG Available for Sale $8.00 5000 $40,000.00 5000
Ending inventory 0 $0.00 1000
Total COGS $40,000.00
Gross margin $35,000.00
Sales and Admin expenses
Fixed sales and admin exp $21,000.00
Variable Saled and Admin ex $1.00 5000 $5,000.00 4000
Net income $9,000.00

Projected Income Statement (Variable)

$ per unit # of units Year 1 # of units
Sales $15.00 5000 $75,000.00 4000
Variable Expenses
Beginning inventory $0.00
Variable MOH $5.00 5000 $25,000.00 5000
COG Available for Sale $5.00 5000 $25,000.00 5000
Ending inventory $5.00 0 $0.00 1000
VC to Manufacturing $25,000.00
Variable selling and ad $1.00 5000 $5,000.00 4000
Total COGS $30,000.00
Contribution margin $45,000.00
Fixed expenses
Fixed OH $15,000.00
Fixed selling and admin exp $21,000.00
Net income $9,000.00

Reconciliation
Year 1
Income under Variable costing $9,000.00
Add: Fixed MOH in Ending Inventory $0.00
Less: Fixed MOH in Beginning Inventory $0.00
Income under Absorption costing $9,000.00
(Absorption)
Year 2 # of units Year 3
$60,000.00 6000 $90,000.00

$0.00 $8,000.00

$25,000.00 5000 $25,000.00

$15,000.00 5000 $15,000.00
$40,000.00 6000 $48,000.00
$8,000.00 0 $0.00
$32,000.00 $48,000.00
$28,000.00 $42,000.00

$21,000.00 $21,000.00
$4,000.00 6000 $6,000.00
$3,000.00 $15,000.00

(Variable)
Year 2 # of units Year 3
$60,000.00 6000 $90,000.00

$0.00 $8,000.00
$25,000.00 5000 $25,000.00
$25,000.00 6000 $30,000.00
$5,000.00 0 $0.00
$20,000.00 $30,000.00
$4,000.00 6000 $6,000.00
$24,000.00 $36,000.00
$36,000.00 $54,000.00

$15,000.00 $15,000.00
$21,000.00 $21,000.00
$0.00 $18,000.00

Year 2 Year 3
$0.00 $18,000.00
$3,000.00 $0.00
$0.00 $3,000.00
$3,000.00 $15,000.00