Prepare a variable costing-based income statement for each year. Explain the variation in variable costing operating income for each year based on contribution margin per unit and sales volume.
Extracted text: Candyland uses standard costing to produce a particularly popular type of candy. Candyland's president, Jack McCay, was unhappy after reviewing the income statements for the first three years of business. He said, "I was told by our accountants-and in fact, I have memorized-that our breakeven volume is 25,000 units. I was happy that we reached that sales goal in each of our first two years. But here's the strange thing: In our first year, we sold 25,000 units and indeed we broke even. Then in our second year we sold the same volume and had a significant, positive operating income. I didn't complain, of course .. but here's the bad part. In our third year, we sold 10% more candy, but our operating income dropped by nearly 90% from what it was in the second year! We didn't change our selling price or cost structure over the past three years and have no price, efficiency, or spending variances . so what's going on?!" Home Insert Page Layout Formulas Data Review View D. 1 Absorption Costing 2016 2017 2018 3 Sales (units) 4 Revenues 5 Cost of goods sold: Beginning inventory Production 25,000 $2,000,000 $2,000,000 $2,200,000 25,000 27,500 182,500 1,825,000 2,007,500 1,825,000 1,825,000 2,007,500 2,007,500 (182,500) Available for sale Deduct ending inventory Adjustment for production-volume variance Cost of goods sold 12 Gross margin 13 Selling and administrative expenses (all fixed) 14 Operating income 10 (150,000) 1,825,000 1,675,000 2,007,500 11 175,000 325,000 192,500 175,000 175,000 175,000 0$ 150,000 $ 17,500 15 16 Beginning inventory 17 Production (units) 18 Sales (units) 19 Ending inventory 20 Variable manufacturing cost per unit 21 Fixed manufacturing overhead costs 22 Fixed manuf. costs allocated per unit produced $ 2,500 25,000 25,000 25,000 27,500 27,500 25,000 2,500 13 $ $1,500,000 $1,500,000 $1,500,000 13 $ 13 60 $ 60 | $ 60