Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 39

Profit Centers: Comparison of Variable and Full Costing Yale Company manufactures hair brushes that sell at wholesale for $3 per unit. The company had no beginning inventory in 2009. These data summarize the 2009 and 2010 operations:

	2009	2010
Sales	1,800 units	2,200 units
Production:	2,000 units	2,000 units
Production cost
Factory—variable (per unit)	$0.60	$0.60
—fixed	$1,000	$1,000
Marketing—variable	$.40	$.40
Administrative—fixed	$500	$500

Required Prepare the following, using a spreadsheet.

1. An income statement for each year based on full costing.

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2. An income statement for each year based on variable costing.

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3. A reconciliation and explanation of the differences in the operating income resulting from using the full-costing method and variable-costing method.

Step 1 of 4

Fixed cost is the portion of total cost which does not changes with change in level of production. Variable cost is the portion of total cost which changes with change in level of production.