Hamington Manufacturing manufactures a single product that it will sell for $76 per unit. The company is
looking to project its operating income for its first two years of operations. Cost information for the single
unit of its product is as follows:
1 (Click the icon to view the data.)
During its first year of operations, the company plans to manufacture 25,000 units and
anticipates selling 21,000 of those units. During the second year of its operations, the company
plans to manufacture 25,000 units and anticipates selling 26,000 units (it has units in beginning
inventory for the second year from its first year of operations).
Read the requirements.
Requirement 1. Prepare an absorption costing income statement for (a) the first year of operations and (b) the second year of operations.
Hamington Manufacturing
Income Statement (Absorption Costing)
(a) Year 1 (b) Year 2
Sales revenue
$ 1,596,000 $ 1,976,000
Less: Cost of goods sold
1,344,000 1,664,000
Gross profit
252,000
312.000
Less: Operating expenses
125,000
135,000
Operating income
$
127,000 $ 177,000
Requirement 2. Before you prepare the variable costing income statements for Hamington, predict the
preparing the variable costing income statements. Hint: Calculate the variable costing operating incom
difference in operating income as calculated using the following formula: Difference in operating incom
Begin by calculating the difference in income each year using the formula provided.
Change in inventory
Year
level in units
Fixed MOH
per unit
Difference in
operating income
1
2
More info
Direct material per unit produced $38
Direct labor cost per unit produced $7
Variable manufacturing overhead (MOH) per unit produced $4
Variable operating expenses per unit sold $2
Fixed manufacturing overhead (MOH) for each year is $375,000,
while fixed operating expenses for each year will be $83,000.
Print
Done
ar without
ubtracting the
