Absorption- and Variable-Costing Income Statements San Mateo Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system.    Manufacturing overhead is applied to jobs on the basis of direct labor hours, utilizing the absorption- or full-costing method. San Mateo’s predetermined overhead rates for 20x1 and 20x2 were based on the following estimates.     20x1   20x2   Direct labor hours   32,500   44,000   Direct labor cost   $325,000   $462,000   Fixed manufacturing overhead   $130,000   $176,000   Variable manufacturing overhead   $162,500   $198,000      Jim Cimino, San Mateo’s controller, would like to use variable (direct) costing for internal reporting purposes as he believes statements prepared using variable costing are more appropriate for making product decisions. In order to explain the benefits of variable costing to the other members of San Mateo’s management team, Cimino plans to convert the company’s income statement from absorption costing to variable costing. He has gathered the following information for this purpose, along with a copy of San Mateo’s 20x1 and 20x2 comparative income statement. San Mateo Optics, Inc.   Comparative Income Statement   For the Years 20x1 and 20x2       20x1     20x2   Net sales   $1,140,000     $1,520,000   Cost of goods sold:               Finished goods at January 1   $ 16,000     $ 25,000     Cost of goods manufactured   720,000     976,000   Total available   $ 736,000     $1,001,000   Less: Finished goods at December 31   25,000     14,000     Unadjusted cost of goods sold   $ 711,000     $ 987,000   Overhead adjustment   12,000     7,000     Cost of goods sold   $ 723,000     $ 994,000   Gross profit   $ 417,000     $ 526,000   Selling expenses   (150,000)     (190,000)   Administrative expenses   (160,000)     (187,000)     Operating income   $ 107,000     $ 149,000   San Mateo’s actual manufacturing data for the two years are as follows:     20x1   20x2   Direct labor hours   30,000   42,000   Direct labor cost   $300,000   $435,000   Direct materials used   $140,000   $210,000   Manufacturing overhead   $132,000   $175,000   The company’s actual inventory balances were as follows:     December 31, 20x0   December 31, 20x1   December 31, 20x2   Direct materials   $32,000   $36,000   $18,000   Work in process:                 Costs   $44,000   $34,000   $60,000     Direct labor hours   1,800   1,400   2,500   Finished goods:                 Costs   $16,000   $25,000   $14,000     Direct labor hours   700   1,080   550      For both years, all administrative expenses were fixed, while a portion of the selling expenses resulting from an 8 percent commission on net sales was variable. San Mateo reports any overor underapplied overhead as an adjustment to the cost of goods sold. Required: 1. For the year ended December 31, 20x2, prepare the revised income statement for San Mateo Optics, Inc., utilizing the variable-costing method. Be sure to include the contribution margin on the revised income statement. Enter all answers as positive amounts. San Mateo Optics, Inc. Variable-Costing Income Statement For the Year Ended December 31, 20x2     $fill in the blank 4adf9802303a04b_2 Variable costs:       $fill in the blank 4adf9802303a04b_4     fill in the blank 4adf9802303a04b_6     fill in the blank 4adf9802303a04b_8   Total available $fill in the blank 4adf9802303a04b_9     fill in the blank 4adf9802303a04b_11     fill in the blank 4adf9802303a04b_13     $fill in the blank 4adf9802303a04b_15     fill in the blank 4adf9802303a04b_17   Total variable costs   fill in the blank 4adf9802303a04b_18     $fill in the blank 4adf9802303a04b_20 Fixed costs:       $fill in the blank 4adf9802303a04b_22     fill in the blank 4adf9802303a04b_24     fill in the blank 4adf9802303a04b_26   Total fixed costs   fill in the blank 4adf9802303a04b_27     $fill in the blank 4adf9802303a04b_29 Finished goods inventory, January 1:       $fill in the blank 4adf9802303a04b_31     fill in the blank 4adf9802303a04b_33     $fill in the blank 4adf9802303a04b_34   2. Select an advantage of using variable costing rather than absorption costing. (CMA adapted)

Absorption- and Variable-Costing Income Statements

San Mateo Optics, Inc., specializes in manufacturing lenses for large telescopes and cameras used in space exploration. As the specifications for the lenses are determined by the customer and vary considerably, the company uses a job-order costing system.

   Manufacturing overhead is applied to jobs on the basis of direct labor hours, utilizing the absorption- or full-costing method. San Mateo’s predetermined overhead rates for 20x1 and 20x2 were based on the following estimates.

   Jim Cimino, San Mateo’s controller, would like to use variable (direct) costing for internal reporting purposes as he believes statements prepared using variable costing are more appropriate for making product decisions. In order to explain the benefits of variable costing to the other members of San Mateo’s management team, Cimino plans to convert the company’s income statement from absorption costing to variable costing. He has gathered the following information for this purpose, along with a copy of San Mateo’s 20x1 and 20x2 comparative income statement.

San Mateo’s actual manufacturing data for the two years are as follows:

The company’s actual inventory balances were as follows:

   For both years, all administrative expenses were fixed, while a portion of the selling expenses resulting from an 8 percent commission on net sales was variable. San Mateo reports any overor underapplied overhead as an adjustment to the cost of goods sold.

Required: