Question

Hayden Company has 50 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hayden produced 150 units and sold 200 units for \(150 each. All units incurred \)80 in variable manufacturing costs and \(20 in fixed manufacturing costs. Hayden also incurred \)7,500 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

Short answer

Answer

The operating income is $2,500 under absorption costing and variable costing.

Step-by-step solution

Income statement using absorption costing

Particulars	Amount
Net sales revenue ($150*200)	$30,000
Less: Cost of goods sold ($100*200)	$20,000
Gross profit	$10,000
Less: Selling and administrative cost	$7,500
Operating Income	$2,500

Income statement using variable costing

Particulars	Amount
Net sales revenue ($150*200)	$30,000
Less: Variable costs ($80*200)	$16,000
Contribution margin	$14,000
Less: Fixed costs
Fixed costs of goods sold($20*200)	$4,000
Fixed selling and administrative cost	$7,500
Operating Income	$2,500