The Cost Structure for Chiang Company, Which Began Operations on January

question 120

Essay

The cost structure for Chiang Company, which began operations on January 1, is provided below:

Variable selling and administrative costs are $4 per unit sold.
During the year, the company produced 4,000 units and sold 3,500 units at the $60 selling price.

Required:

1) Prepare an income statement under absorption costing.
2) Prepare an income statement under variable costing.
3) Explain the difference between the two income amounts.
4) What absorption costing disadvantage does this exercise emphasize?

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Definitions:

Sagittal Suture

The fibrous joint connecting the two parietal bones of the skull along the midline, from the front to the back.

Palpebral Fissures

The natural openings between the eyelids of the upper and lower eyes, varying in shape and size among individuals.

Hearing-Impaired

A term used to describe individuals who have partial or total inability to hear sounds.

Lip Reads

The process of understanding speech by visually interpreting the movements of the lips, face, and tongue, used especially by those with hearing impairments.