Managerial Accounting 14th Edition by Ray Garrison ,Eric Noreen ,Peter Brewer 4

Exercise 2

Variable Costing Income Statement; Explanation of Difference in Net Operating Income
Refer to the data in Exercise 6-1 for Shastri Bicycle. The absorption costing income statement prepared by the company's accountant for last year appears below:
Required:
1. Determine how much of the ending inventory consists of fixed manufacturing overhead cost deferred in inventory to the next period.
2. Prepare an income statement for the year using variable costing. Explain the difference in net operating income between the two costing methods.