Reference no: EM13395735

Golden Star Company manufactures and sells a unique product that has been quickly accepted by the consumers. The results of last month's operations are shown below (absorption costing basis):

Sales (10,000 units @ $20)	$200,000
Less: cost of goods sold (10,000 units @ $14)	140,000
Gross margin	60,000
Less: selling and administrative expenses	45,000
Net income	$  15,000

Variable selling and administrative expenses are $2 per unit. Variable manufacturing costs total $10 per unit, and fixed manufacturing overhead costs total $48,000 per month. There was no beginning inventory. The company produced 12,000 units during the month.

Required:

1- Restate Golden Star's income statement in contribution margin format, using variable costing.

2- Reconcile the variable costing and absorption costing net income figures.

3- State which costing approach is used in published financial statements, and briefly explain the usefulness of the other approach.

4- The easiest way to distinguish between relevant and irrelevant costs is by cost behavior; variable costs are relevant costs and fixed costs are irrelevant costs. Explain why you do or do not agree with this statement and support your answer with suitable example(s).