Tutorial 6. Variable vs. Absorption Costing

1. Variable and absorption costing, explaining operating-income differences. BigScreen Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March of 2012 are as follows:

| |January |February |March |
|Unit data | | | |
| Beginning inventory |0 |300 |300 |
| Production |1,000 |800 |1,250 |
| Sales |700 |800 |1,500 |
|Variable costs | | | |
| Manufacturing cost per unit produced |$900 |$900 |$900 |
| Operating (marketing) cost per unit sold |$600 |$600 |$600 |
|Fixed costs | | | |
|Manufacturing costs |$400,000 |$400,000 |$400,000 |
|Operating (marketing) costs |$140,000 |$140,000 |$140,000 |

The selling price per unit is $2,500. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,000 units.

1. Prepare income statements for BigScreen in January, February, and March of 2012