Reference no: EM132560436

Babylon Corporation has a division which produces and sells salt products. For the coming year (2021), it expects to sell 150,000 packages for $8 per package. Each package includes 1 kg salt.

Beginning inventory of 2021 is zero, and the division manager decided to produce 200,000 packages. Other related information provided below:

Estimated Information for 2021

Beginning inventory 0

Expected sales 150,000 packages

Selling price per package $8

Variable manufacturing costs per package $3

Fixed manufacturing overhead costs (total) in 2021 will be $300,000

Variable selling and administrative expense $1 per package

Fixed selling and administrative expense (total) $130,000

Question (a) Prepare the absorption costing income statement.

Question (b) Prepare the variable costing income statement.

Question (c) Reconcile the difference in net incomes under the two approaches and explain what accounts for this difference.

Question (d) What are the possible reasons of using variable costing for internal reporting purposes?