Reference no: EM131640519

Hank Company manufactures and sells one product. Sales and production information is contained below.

• Selling price per unit $65
• Variable manufacturing costs per unit produced (DM, DL, and variable MOH)$36
• Variable operating expenses per unit sold $6
• Fixed manufacturing overhead (MOH) in total for the year $216,000
• Fixed operating expenses in total for the year $75,000
• Units produced during the year 18,000
• Units sold during the year 15,000

(a) Prepare the income statement using variable costing. (10 points)

(b) Prepare the income statement using absorption costing. (10 points) 

(c) Please explain the difference in operating income between the two methods.

Bestick Company manufactures and sells trophies for winners of athletic events. The company normally charges $65 per trophy. The average costs for a trophy is shown below.

Direct materials:                              $15

Direct labor:                                      10

Variable manufacturing overhead:     5

Variable marketing expenses:               3

Fixed manufacturing overhead:             12 ($1,200,000 fixed manufacturing overhead/100,000 trophies)

Total costs:                    $45

Bestick Company has enough idle capacity to accept a one-time only special order for 1,000 trophies at $55 per trophy. Bestick Company will not incur any variable marketing expenses for this order and no additional fixed costs. 

Required:

Should the company accept this special order? Please state your decision and provide numerical support for your decision.