ABSORPTION AND VARIABLE INCOME STATEMENTS

| March 31, 2017

Question
ABSORPTION AND VARIABLE INCOME STATEMENTS (40 pts)
Domingo Inc makes filing cabinets that sell for $300 each. For last year ending Dec 31, Domingo Inc had
the following data:
Beginning Inventories (all)…………………………..0
Units produced…………………………………10,000
Units sold………………..………………………8,750
Variable Unit Costs:
Direct materials…………………$40
Direct labor………………………25
Variable manufacturing OH……. 8
Sales force commissions…………6
Phone center staff……………….3
Total Variable Cost per Unit
$82
Fixed costs:
Indirect labor……………….$80,000
Indirect materials……………..3,000 (cleaning supplies in factory)
Fixed manufacturing OH……150,000 (does not include indirect costs)
Office salaries…………… …95,000
Base sales salaries……………80,000
Advertising exp………………97,000
Total Fixed Costs……………….$505,000
Required:
1) Determine the unit cost under variable costing.
2) Determine unit cost under absorption costing.
3) Prepare a variable income statement in good form.
4) Prepare an absorption income statement in good form.
5) Reconcile the difference in the net operating incomes.
6) Determine Domingo’s breakeven point in units and dollars.
Note: You may lump variable selling and admin expenses together into one number if you wish, where
appropriate. You may lump fixed selling and admin expenses together into one number if you wish,
where appropriate. You may lump fixed manufacturing overhead costs together into one number if you
wish, where appropriate.

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