Valux Manufactures a Single Product and Sells It for $10

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The Answer is a. Variable cost and absorption costing income statements
Income statement under variable costing:

\begin{array} { | l | r | } \hline ext { Revenue } ( \$ 10 / ext { unit) } ( 1,000 + 10,000 ) & \$ 110,000 \\hline ext { Cost of goods sold } & \\hline ext { Beginning inventory } ( \$ 2 / ext { unit } ( 1,000 ext { units } ) & ( 2,000 ) \\hline ext { Produced this year } ( \$ 3 / ext { unit } ) ( 10,000 ext { units } ) & ( 30,000 ) \\hline ext { Fixed costs } & \underline{( 40,000 )} \\hline ext { Profit } & \$ 38,000 \\hline\end{array}

The $3/unit fixed cost of making the beginning inventory would have been expensed in the previous year under variable costing.
Under absorption costing the cost per unit this period is:
[($3/unit) (10,000 units) + $40,000]/10,000 units = $7/unit
Income statement under absorption costing:

\begin{array} { | l | c | } \hline ext { Revenue } ( \$ 10 / ext { unit } ) ( 1,000 + 10,000 ) & \$ 110,000 \\hline ext { Cost of goods sold } & \\hline ext { Beginning inventory } ( \$ 5 / ext { unit) } ( 1,000 ext { units } ) & ( 5,000 ) \\hline ext { Produced this year } ( \$ 7 / ext { unit } ) ( 10,000 ext { units } ) & \underline{( 70,000 )} \\hline ext { Profit } & \$ 35,000 \\hline\end{array}

b. The difference is due to the ($3/unit) (1,000 units) or $3,000 of fixed cost that is carried over to this year from last year in the beginning inventory.

Valux Manufactures a Single Product and Sells It for $10

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