Question description

Homework Handout Problem 6-2
Variable Costing

Boise Manufacturing Company makes wooden pallets that are sold to
trucking companies. Following are inventory, sales and production figures for
June 2013:

BEGINNING
INVENTORY

1000 UNITS

PRODUCED
DURING JUNE

15,000
UNITS

SOLD
DURING JUNE

14,000
UNITS

SALES AND
COST INFORMATION

SALES
PRICE PER UNIT

$5.00

VARIABLE
MANUFACTURING COSTS

$2.00

FIXED
MANUFACTURING COSTS

$1.00

SELLING,
GENERAL & ADMIN COSTS/MONTH

$20,000

Required:
1. Compute and income statement using the absorption
method.
2. Compute an income statement using the variable method.
3. Reconcile and explain the differences.
4. Which method complies with GAAP and why?
5. Why might management convert
the internal reporting to a variable statement at the end of the period?