Reference no: EM132835187

Question - Space Company uses standard costing and has the following three non-zero variances (all other variances were 0):

Direct material efficiency variance $ 70,000 F

Variable factory overhead spending variance $ 150,000 U

Production volume variance YOU DETERMINE

Space Company also has the following income statement information AFTER prorating any variances:

Selling price $10/unit

Adjusted variable man cost of goods sold

(This is AFTER adjustment for variances) $1,860,000

Contribution margin $1,000,000

Net income under variable costing $40,000

Fixed selling and admin expenses $60,000

Units produced 400,000

Units sold 300,000

Denominator level in units 450,000

Assume beginning finished goods is $0, and beginning and ending WIP are $0. If you want, you can also assume standard costing uses direct labor hours to apply overhead and requires 1 direct labor hour to produce a unit.

1) Please answer the following:

a. Present a standard absorption costing income statement with proration (please show the adjustment for variances, if there is any).

b. Space Company wants to legally minimize income taxes, what type of income statement (absorption or variable costing) should they tell their accountant to submit to the tax authority? Why?