Reference no: EM132462874

Question - Smart Products Inc. produces smart phones. The company has no ?nished goods inventory at the beginning of year 1. The following information pertains to Smart Products Inc.

Annual production 200,000 units

Sales price $400 per unit

Variable production cost per unit:

Direct materials $120

Direct labor 60

Manufacturing overhead 80

Total variable cost per unit $260 per unit

Fixed production costs $400,000 each year; $2 per unit at 200,000 units of production

Variable selling and admin, cost $20 per unit

Fixed selling and admin, costs $400,000 each year

All 200,000 units produced during year 1 are sold during year 1.

Required -

a. Prepare a traditional income statement assuming the company uses absorption costing.

b. Prepare a contribution margin income statement assuming the company uses variable costing.