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dallas equation
  Demo 6-1: Prepare & Reconcile Variable & Absorption Costing Income Statements -- Production Const Sales Variesi!en: Linden Company manufactures and sells a single product. Cost data for the product follow:Variable costs per unit:Direct materials 6#$$ Direct labor  1%#$$ Variable factory overhead #$$ %%#$$ Variable selling & administrative '#$$ Total variable costs per unit %(#$$ Fied costs per month:Fied manufacturing overhead %$,$$$ )#$$ Fied selling & administrative 1)$,$$$ Total fied cost per month %$,$$$ '$#$$ 1(#$$ !roduction and sales data for ay and #une$ the first two months of operations$ are as follows: $#$$ *nits*nitsC+ange inProducedSoldIn!entor ay '$,$$$ %6,$$$ %$ #une '$,$$$ ',$$$ '%$(Total 6$,$$$ 6$,$$$  presented below: a.une )ales 1,$$,$$$ 1,'6$,$$$ Cost of goods sold*eginning inventory $ 1%$,$$$ +,-$ dd cost of goods manufactured /$$,$$$ /$$,$$$ +/$+/$0oods available for sale /$$,$$$ 1,$%$,$$$ Less ending inventory 1%$,$$$ $ +,-$ Cost of goods sold+12$ 0)$,$$$ 1,$%$,$$$ +,$-$0ross margin %6$,$$$ '$,$$$ )elling & administrative epenses %(),$$$ %)%,$$$ +-32$+-2-$4perating income %,$$$ (),$$$ Reuired:1#Determine t+e unit product cost under:a#Absorption costingb#Variable costing  bsorptionVariableCostingCostingDirect materials 6#$$ 6#$$ Direct labor  1%#$$ 1%#$$ The product sells for $  per unit. 5ote: Contribution margin per unit is 6ncome statements prepared by the accounting department$ using absorption costing$ are  Variable manufacturing overhead #$$ #$$ Fied manufacturing overhead '+-%$78$(2. +8. +--. %#Prepare !ariable costing income statements 2or a and .une using t+econtribution margin 2ormat approac+# Linden CompanyVariable Costing 6ncome )tatementsFor the onths of ay and #une ay#une)ales '-9$  +%; 8%$  +%( 1,$$,$$$ 1,'6$,$$$ Variable epenses:Variable cost of goods sold31-$ +31-$ +1%2$ 1%2$ Variable selling & administrative12$ 12$ ,-$ ,-$ Total variable epenses+93$ +23$ Contribution margin 1(#$$ +8/$ +3,$ Fied epenses:8/$ 3,$ Fied manufacturing overhead %$,$$$ %$,$$$ Fied selling & administrative 1)$,$$$ 1)$,$$$ Total fied epenses %$,$$$ %$,$$$ 4perating income 'loss('+8$(+/$ '#Reconcile t+e !ariable costing and absorption costing net operating income 2igures ay#une4perating variable costing income 'loss('+8$(+/$  d<ustment for Change in inventory during ay!roduction '$,$$$ )ales %6,$$$ 6ncrease in inventory%$ Fied 4= rate+2. Fied + deferred in inventory+8-$ 8-$ 3perating absorption costing income 4loss5 %,$$$  d<ustment for Change in inventory during #une!roduction '$,$$$ )ales ',$$$ Decrease in inventory'%$(Fied 4= rate+2. Fied + released from inventory'+8-$('8-$( 3perating absorption costing income 4loss5 (),$$$ #+e compan7s Accounting Department +as determined t+e brea8-e!en point to be 4 $ - %(5 9 1( *pon recei!ing t+is 2igure, t+e president commented, +ere7s somet+ing strange +ere#+e controller sas t+at t+e brea8-e!en point is %),$$$ per mont+# ;et <e sold onl%),$$$ units per mont+, computed as 2ollo<s:=i>ed cost per mont+?*nit contribution margin 9 %$,$$$ ? 1( per unit 9 %),$$$ units %6,$$$ units in a, and t+e income statement <e recei!ed s+o<ed a %,$$$ pro2it#  @+ic+ 2igure do <e belie!e Prepare a brie2 e>planation o2 <+at +appened on t+e aincome statement# The brea>?even analysis above assumes that all of Linden Company@s +%-$ of monthly fiedcosts will be recogniAed as epenses each month in its monthly income statements. 6f LindenCompany uses a variable costing approach to measuring operating income$ then this assumption will hold true. =owever$ if the absorption costing approach is used to measure operating income$this assumption will hold true only when production is eBual to sales. 6n ay$ production wasgreater than sales by %$ units. Therefore$ +8-$ '%$  +2( of fied 4= costs was deferred in ending inventory to future periods. This +8-$ of deferred fied 4= costs will berecogniAed in future periods as epense items when the inventory units to which these costs areassigned are sold. Fewer units need to be sold to *7 since recogniAed fied costs are +8-$less.Current sales %6,$$$#$$ *7  '+%-$ ? +8-$(7+,3 -3$299.91 )ales greater than *7,88.88 C per unit sold 1(#$$ 4perating income ?? -9$ sales %,$$$#$$ Thus$ both are correct depending on underlying assumptions. 5ormal *7 analysis assumes production  sales. This assumption eBuates operating incomemeasured under variable costing with operating income measured under absorption costing.)ince production is greater than sales during ay$ operating income is greater when measuredusing an absorption costing approach than when using a variable costing approach.   ant,
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