Sullivan Is Pleased with How His Company Is Doing

Essay

Sullivan is pleased with how his company is doing. He sells his car dividers for $35 each. The company has been increasing the number of units produced each year and expects sales to meet production demand. He prepares his income statement using both variable costing and absorption costing. The following income statements were prepared for the current year. There were no price or efficiency variances noted as part of the company's standard cost system. Sullivan believes the upcoming fiscal year will show an increased sales volume of 10%. All per unit variable costs, selling price, and fixed costs will be consistent with the current year's information. Budgeted and actual production will remain the same, as the company has enough inventory to cover the increase. Instructions
a.Identify which income statement reflects which method.
b.Explain the difference in operating income between the two statements.
c.Based on the anticipated sales volume increase, prepare projected income statements under both absorption and variable costing.