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

Exercise 8

Sants Brakes Co.
The current year's income statement for Sants Brakes Co. on a variable costing basis appears in the accompanying table.
Inventories of finished stock were increased during the year in anticipation of increases in sales volume in the current year. Inventories in units of product for the beginning and end of the year follow.
The budgeted operating level for assigning fixed overhead to production is 1.8 million machine hours. One-half hour is required to produce a unit of G-226, two hours are required for a unit of G-348, and four hours are required for a unit of G-714.
Required:
a. Recast the income statement on an absorption costing basis.
b. Explain why the income from manufacturing on the absorption costing statement differs from the income on the variable costing statement. Show your computations.