Company has 130 units in Finished Goods Inventory at the beginning of the accounting period. During the accounting period, Hacken produced 190 units and sold 320 units for $ 250 each. All units incurred $ 55 in variable manufacturing costs and $ 30 in fixed manufacturing costs. Hacken also incurred $ 7 comma 700 in Selling and Administrative Costs, all fixed. Calculate the operating income for the year using absorption costing and variable costing.

The operating income for the year using absorption costing and variable costing is $45,100 and $49,000 respectively

Explanation:

The computation of the operating income for the year using absorption costing and variable costing is shown below:

Absorption costing:

Sales (320 units * $250) $80,000

Less: Total manufacturing cost (320 units * $85) ($27,200)

Contribution margin $52,800

Less: Selling and Administrative Costs ($7,700)

Net income $45,100

Variable costing:

Sales (320 units * $250) $80,000

Less: Variable cost (320 units * $55) ($17,600)

Contribution margin $62,400

Less: Fixed manufacturing costs (190 units * $30) $5,700

Less: Selling and Administrative Costs ($7,700)

Net income $49,000