Absorption Costing

Absorption Costing Unit Product Cost | |
Direct Material |   $             48.00 | |
Inventory |   $             2.00 | |
Fixed Manufacturing Overhead |   $             30.00 | |
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Total   Absorption Costing Unit Product Cost | $80.00 |
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Variable Costing Unit Product Cost | |
Direct Material |   $             48.00 | |
Variable Manufacturing Overhead |   $             2.00 | |
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Total   Variable Costing Unit Product Cost | $50.00 |
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Absorption Costing Income Statement | |
Sales | $1,500,000.00 | |
Cost of Goods Sold |   $     800,000.00 | |
Gross Margin |   $     700,000.00 | |
Selling and Administration Expense | $650,000.00 | |
Net Operating Income (Loss) |   |   |   |   | $50,000.00 |
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Variable Costing Income Statement | |
Sales |   $ 1,500,000.00 | |
Variable Expense: |     | |
    Variable Cost of Goods Sold |   $     500,000.00 | |
    Variable Selling and Administration |   $     180,000.00 | |
Total Variable Expense: |   $     680,000.00 | |
Contribution Margin |   $     820,000.00 | |
Fixed Expense: |     | |
    Fixed Manufacturing Overhead |   $     360,000.00 | |
    Fixed Selling and Administration |   $     470,000.00 | |
Total Fixed Expense: |   $     830,000.00 | |
Net Operating Income (Loss) | ($10,000) |
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Reconciliation of Variable and Absorption Costing Net Income | |
Variable Costing Net Operating Income |   $     (10,000.00) | |
Fixed Manufacturing Overhead Cost (2000 units x $30) |   $     60,000.00 | |
Absorption Costing Net Operating Income |   $   50,000.00 |
Assume that the company must obtain additional financing in order to continue operations.  As a member of top management, would you prefer to rely n the statement in (b) above or in (3) above when meeting with a group of prospective investors?
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