Gulf Giants Corporation planned to be in operation for three years.
∙ During the first year, 2011, it had no sales but incurred $240,000 in variable manufacturing expenses and $80,000 in fixed manufacturing expenses.
∙ In 2012, it sold half of the finished goods inventory from 2011 for $200,000 but it had no manufacturing costs.
∙ In 2013, it sold the remainder of the inventory for $240,000, had no manufacturing expenses and went out of business.
∙ Marketing and administrative expenses were fixed and totaled $40,000 each year.
Required:
a. Prepare an income statement for each year using absorption costing.
b. Prepare an income statement for each year using variable costing.

Question

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The Answer of Gulf Giants Corporation planned to be in operation for three years.
∙ During the first year, 2011, it had no sales but incurred $240,000 in variable manufacturing expenses and $80,000 in fixed manufacturing expenses.
∙ In 2012, it sold half of the finished goods inventory from 2011 for $200,000 but it had no manufacturing costs.
∙ In 2013, it sold the remainder of the inventory for $240,000, had no manufacturing expenses and went out of business.
∙ Marketing and administrative expenses were fixed and totaled $40,000 each year.
Required:
a. Prepare an income statement for each year using absorption costing.
b. Prepare an income statement for each year using variable costing.

Gulf Giants Corporation Planned to Be in Operation for Three