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The following information relates to Jorgensen Manufacturing for calendar year 2011, the company’s first year of operation:
Units produced 8,000
Units sold 7,000
Selling price per unit $4,500
Direct material per unit $2,000
Direct labor per unit $1,200
Variable manufacturing overhead per unit $900
Variable selling cost per unit $225
Annual fixed manufacturing overhead $800,000
Annual fixed selling and administrative expense $400,000
a. Prepare an income statement using full costing.
b. Prepare an income statement using variable costing.
c. Calculate the amount of fixed manufacturing overhead that will be included in ending inventory under full costing and reconcile it to the difference between incomes computed under variable and full costing.
d. Suppose that the company sold 8,000 units during the year. What would the variable costing net income have been? What would the full costing net income have been?