Accounting for Decision Making and Control 6th Edition by Jerold Zimmerman

Exercise 24

Avant Designs designs and manufactures polished-nickel fashion bracelets. It offers two bracelets: Aztec and Mayan. The following data summarize budgeted operations for the current year:

Budgeted fixed manufacturing overhead for the year was $258,000.
Required:
a. Prepare the budgeted income statement for the year using variable costing.
b. Prepare the budgeted income statement for the year using absorption costing. Budgeted fixed manufacturing overhead is allocated to the two bracelets using machine minutes.
c. Explain the difference in the two net income figures computed in parts (a) and (b). That is, reconcile any difference in earnings and explain why it occurs.