133) Hopson Manufacturing uses an actual cost system for product costing.  The company’s income statement for 2006 is presented below:

HOPSON MANUFACTURING COMPANY

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2006

Sales (10,000 units @ $20)$200,000

Cost of Goods Sold:

Finished Goods Inventory, January 1 $- 0 –

Cost of Goods Manufactured

     (12,000 units @ $15)180,000

Goods Available for Sale180,000

Finished Goods Inventory, December 31

(2,000 units @ $15)  30,000150,000

Gross Margin$  50,000

Operating Expenses:

Selling$20,000

Administrative  20,000    40,000

Income$  10,000

The following additional information is available:

Variable costs per unit:

Direct materials$4

Direct labour5

Manufacturing overhead2

Selling expense1

Fixed costs for the period:

Manufacturing overhead$48,000

Selling10,000

Administrative20,000

a. When absorption costing was used, how much fixed manufacturing overhead was deferred in finished goods inventory?

b. Recast the income statement for 2006 using variable costing.

c. Reconcile variable costing income and absorption costing income.



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