Sales
Cost of goods sold
Fabio's Fashions
Income Statement
(Absorption Costing Basis)
For the Month Ended April 30
Production volume variance
Gross margin
Fixed selling & administrative expenses
Income before taxes
$ 14,400,000
$ 10,200,000
1,275,000
14,400,000 x
2,925,000
2,400,000
$ 525,000
2. Reconcile and explain the difference between the variable costing and the absorption costing income figures.
Reconciliation
Income before tax - Variable
$ 300,000
Inventoried FMOH
225,000
Income before tax -Absorption
$ 525,000
b. Which of the following statements about variable costing are true?
Contribution margins vary directly with units sold, not units produced.
Income before taxes will always be lower under variable costing, resulting in lower income taxes.
Under variable costing, manufacturing cost per unit doesn't change based on production volume.
Contribution margins are useful in making decisions that are based on relationships between costs yolu
True or False?
True
False
True
