MA31 Problem: Direct vs Absorption Costing – Hoeley Ltd.

MA31 Problem: Direct vs Absorption Costing – Hoeley Ltd.

Hoeley Limited manufactures and sells a single product. Hoeley Limited utilizes a standardcosting system. Select information for the past year is:Sales volume 52,000 unitsSelling price $46 per unitStandard costs:Direct material and direct labour $14.25 per unitBudgeted manufacturing overhead $3.25 per unit plus fixed costs of $267,750 per year Budgeted level of production 59,500 units per year Beginning inventory 11,000 unitsEnding inventory 15,000 unitsSelling, general and administrative $2.30 per unit sold plus fixed costs $560,000Income tax rate 40%Actual Production during year 56,000Variances for variable manufacturing costs amounted to $6,924 unfavourable. Actualexpenditures for fixed manufacturing costs were $257,300. There were no variances with respectto any of the selling, general and administrative costs.Standard costs are constant year over year.REQUIRED:(a)

Prepare an absorption costing income statement for the year.(b)

Prepare a contribution costing income statement for the year.(c)

Reconcile the difference between the absorption and contribution income statements