Accounting for Decision Making and Control 8th Edition by Jerold Zimmerman

Exercise 13

Mystic Mugs
Sanjog and Rajiv Gupta have started a business that manufactures and sells thermal mugs. Users personalize the mugs by plugging them into a laptop and downloading their favorite images from a digital camera. The company makes two mug sizes: 16 and 24 ounce mugs. This is its first year of business. The following data summarize operations for the first year.
There were no beginning inventories. Overhead is assigned to products using direct labor dollars.
Required:
a. Calculate Mystic Mugs's net income before taxes using absorption costing.
b. Calculate Mystic Mugs's net income before taxes using variable costing.
c. Prepare a table that reconciles any difference between the two net income figures calculated in parts ( a ) and ( b ).
d. Write a short memo explaining in lay terms any difference between the two net income figures calculated in parts ( a ) and ( b ).