Variable and Absorption Costing

Variable and Absorption Costing with high-low cost estimation and CVP Analysis Including Taxes

Charger Company
Income statement 
January 2012
Production and sales 40,000 

Sales Revenue $1,000,000 
Cost of goods manufactured and sold (500,000) 

Gross profit 475,000 
General and administrative expenses 235,000 

Net income before taxes 240,000 
Income taxes at 0.40 (96,000) 

Net income after taxes $ 144,000 

February 2012
Production and sales 50,000

Sales Revenue $1,250,000
Cost of goods manufactured and sold (625,000)

Gross profit 625,000
General and administrative expenses 235,000

Net income before taxes 390,000
Income taxes at 0.40 (156,000)

Net income after taxes $ 234,000

a. Using the high-low method, develop a cost estimating equation for total monthly manufacturing costs.
b. Determine Charger Company’s monthly break-even point.
c. Determine the unit sales required to earn a monthly after-tax income of $ 150,000. 
d. Prepare a January 2012 contribution income statement using variable costing. 
e. If the January 2012 net income amounts differ using absorption and variable costing, explain why. If they are identical, explain why.