Fitzpatrick Inc. planned and manufactured 500,000 units of its single product in 2013, its first year of operations. Variable manufacturing costs were $40 per unit of production. Planned fixed manufacturing costs were $1,200,000. Marketing and administrative costs (all fixed) were $500,000 in 2013. Fitzpatrick sold 450,000 units of products in 2013 at $50 per unit.
Required:
1. Determine Fitzpatrick Inc.'s operating income using full costing.
2. Determine Fitzpatrick Inc.'s operating income using variable costing.
3. Explain the difference between the operating incomes in requirements 1 and 2.

Question

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The Answer of Fitzpatrick Inc. planned and manufactured 500,000 units of its single product in 2013, its first year of operations. Variable manufacturing costs were $40 per unit of production. Planned fixed manufacturing costs were $1,200,000. Marketing and administrative costs (all fixed) were $500,000 in 2013. Fitzpatrick sold 450,000 units of products in 2013 at $50 per unit.
Required:
1. Determine Fitzpatrick Inc.'s operating income using full costing.
2. Determine Fitzpatrick Inc.'s operating income using variable costing.
3. Explain the difference between the operating incomes in requirements 1 and 2.