Ace Products Sells Its Products for $22 Each

Essay

Ace Products sells its products for $22 each. Unit manufacturing costs are: direct materials, $4.00; direct manufacturing labour, $6.00; and variable manufacturing overhead, $3.00. Total fixed manufacturing overhead costs are $60,000 and marketing expenses are $2.00 per unit plus $20,000 per year. The current production level is 25,000 units although only 20,000 units are anticipated to be sold.
Required:
a. Prepare an income statement using absorption costing in the gross margin format.
b. Prepare an income statement using variable costing in the contribution margin format.