The document discusses the differences between variable and absorption costing methods. It provides cost information for Regal, which produced 20,000 units in 1999 and sold 18,000 units. The variable costs per unit are $130 for direct materials, $38 for direct labor, and $12 for variable overhead. Fixed costs include $400,000 for manufacturing overhead and $212,000 for selling costs. Income statements are to be prepared for 1999 under both variable and absorption costing. In 2000, Regal produced and sold 20,000 and 21,000 units respectively, with no change in costs. Income statements for 2000 must also be prepared under both costing methods.

1. Variable and Absorption Costing
1. During 1999, Regal produced 20,000 units and sold 18,000. There were no units in beginning
inventory. Each unit sells for $250. Regal reports the following costs:
Variable costs:
Direct materials
Direct labor
Variable manufacturing overhead
$130 per unit
38 per unit
12 per unit
Fixed manufacturing overhead 400,000
Variable selling costs 16 per unit
Fixed selling costs 212,000
If Regal uses variable costing, what will the cost of one unit be? Would the cost be different if Regal
uses absorption? Explain any difference between the unit cost under variable and absorption costing.
Prepare an income statement in a variable-costing format and in an absorption-costing format.
2. During 2000, Regal produced 20,000 units and sold 21,000. There has been no change in the
company's cost structure. If Regal uses variable costing, what is the cost of each unit produced?
What is the unit cost assuming Regal uses absorption costing? Prepare an income statement for the
year ended December 31, 2000 assuming Regal uses variable costing. Prepare the year 2000
income statement using absorption costing. Reconcile between the income reported under the
alternative methods.