Reference no: EM132438376

Golfy Ltd produces a professional-grade vacuum cleaner and began operations in 2018. For 2018, Golfy budgeted to produce and sell 25 000 units. The company writes off under- or over-allocated overheads to Cost of goods sold. Actual data for 2018 are given as follows:

Units produced                                            21 000

Units sold                                                     18 500

Selling price                                                       $432

Variable costs:

Production cost per unit produced

Direct materials                                              $33

Direct production labour                                     23

Production overhead                                        62

Marketing cost per unit sold                                  46

Fixed costs:

Production costs                                          $1 550 000

Administrative costs                                          906 300

Marketing                                                     1 475 000

1. Prepare a 2018 income statement for Golfy using variable costing (not in the presentation).

2. Prepare a 2018 income statement for Golfy using absorption costing (not in the presentation).

3. Explain the differences in operating profit obtained in requirements 1 and 2. Compare and explain each line of the two income statements.

4. Explain why the comparison between the operating income under absorption costing versus variable costing would be different if the number of units produced is higher than the number of units sold.