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FAB company 400000

Price: $2.50


FAB produces fabrics that are used for clothing and other applications. In 2013,
the first year of operations, FAB produced 500,000 yards of fabric and sold 400,000 yards.
In 2014, the production and sales results were exactly reversed. In each year, selling price
per yard was $2.50, variable manufacturing costs were 30% of the sales price of units produced,
variable selling expenses were 10% of the selling price of units sold, fixed manufacturing
costs were $400,000, and fixed administrative expenses were $100,000.

Instructions
(a) Prepare income statements for each year using variable costing.
(b) Prepare income statements for each year using absorption costing.
(c) Reconcile the differences each year in income from operations under the two costing
approaches.

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