Ace Products sells its products for $22 each. Unit manufacturing costs are: direct materials, $4.00; direct manufacturing labour, $6.00; and variable manufacturing overhead, $3.00. Total fixed manufacturing overhead costs are $60,000 and marketing expenses are $2.00 per unit plus $20,000 per year. The current production level is 25,000 units although only 20,000 units are anticipated to be sold.
Required:
a. Prepare an income statement using absorption costing in the gross margin format.
b. Prepare an income statement using variable costing in the contribution margin format.

Question

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The Answer of Ace Products sells its products for $22 each. Unit manufacturing costs are: direct materials, $4.00; direct manufacturing labour, $6.00; and variable manufacturing overhead, $3.00. Total fixed manufacturing overhead costs are $60,000 and marketing expenses are $2.00 per unit plus $20,000 per year. The current production level is 25,000 units although only 20,000 units are anticipated to be sold.
Required:
a. Prepare an income statement using absorption costing in the gross margin format.
b. Prepare an income statement using variable costing in the contribution margin format.

Ace Products Sells Its Products for $22 Each