Reference no: EM132746617

Alco Limited produces and sells digital thermostats at its Cape Breton facility. 2020 was the first year of operations and Alco budgeted to produce and sell 50,000 thermostats. Fixed manufacturing overhead was budgeted at $2,400,000. Alco uses a standard cost system in which fixed manufacturing overhead is allocated to units based on produced units. Each Thermostat sells for $230.00. Alco produced 50,000 units in 2020 with actual sales of 46,500 units.

Actual cost data for each thermostat for 2020 follows:

Variable Manufacturing Cost per Unit              $125
Variable Marketing Cost per Unit                     $20
Total Fixed Manufacturing Cost                     $2,485,500
Total Fixed Marketing and Administration Cost    $650,000

Required:

Problem 1. Calculate the operating income under Variable Costing

Problem 2. Calculate the operating income under Absorption Costing

Problem 3. Explain the difference in operating Income under Variable and absorption costing above.