EntertainMe Corporation manufactures and sells 50-inch television sets and uses standard costing. Actual data relating to January, February, and March 2017 are as follows:
January February March
Unit Data
Beginning inventory 0 150 150
Production 1,500 1,400 1,520
Sales 1,350 1,400 1,530
Variable costs
Manufacturing cost per unit produced $1,000 $1,000 $1,000
Operating (marketing) cost per unit sold $800 $800 $800
Fixed costs:
Manufacturing costs $525,000 $525,000 $525,000
Operating (marketing) costs $130,000 $130,000 $130,000
The selling price per unit is $3,300. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to the cost of goods sold in the month in which it occurs.
Requirements
1. Prepare income statements for EntertainMe in January, February, and March 2017 under (a) variable costing and (b) absorption costing.
2. Explain the difference in operating income for January, February, and March under variable costing and absorption costing.
