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

question 38

Essay

The cost structure for Chiang Company,which began operations on January 1,is provided below:
$\begin{array}{ll}\text { Direct materials } & \$ 18 \text { per unit } \\\text { Direct labor } & \$ 14 \text { per unit } \\\text { Manufacturing overhead: } & \\\text { Variable } & \$ 8 \text { per unit } \\\text { Fixed } & \$ 20,000(\$ 5.00 \text { per unit })\end{array}$ $$\text { Fixed selling and administative } \quad\quad \$ 12,000$$ 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:

Random Assignment

Procedure whereby each study participant has an equal chance of being in each treatment group.

Random Assignment

Refers to the process in procedural statistics and experimental design where study participants are assigned to either the treatment or control group using a random method to ensure that each participant has an equal chance of being placed in any group.

External Validity

The extent to which the findings from a study can be generalized to other people, other settings, and other time periods.

Placebo

An inactive substance or treatment given to a participant in a study, used to test the efficacy of a therapy or medication.