On June 30, 2014, the end of the first month of operations,Smithey Manufacturing Co. prepared the following income statement,based on the variable costing concept:
Sales (90,000units) $1,260,000 Variable cost of goodssold: Variable cost of goods manufactured(110,000 units x $10 per unit) $1,100,000 Less ending inventory (20,000 unitsx $10 per unit) 200,000 Variablecost of goods sold 900,000 Manufacturingmargin $360,000 Variable selling andadministrative expenses 12,000 Contributionmargin $348,000 Fixed costs: Fixed manufacturing costs $60,500 Fixed selling and administrativeexpenses 21,000 81,500 Income fromoperations $266,500
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a. Prepare an absorption costing incomestatement. In your computations, round unit costs to two decimalplaces and round final answers to the nearest dollar.
Smithey Manufacturing Co.
Income Statement-Absorption Costing
For the Month Ended June 30, 2014
$
Cost of goods sold:
$
$
Income from operations
$
On June 30, 2014, the end of the first month of operations,Smithey Manufacturing Co. prepared the following income statement,based on the variable costing concept:
| Sales (90,000units) | $1,260,000 | |||
| Variable cost of goodssold: | ||||
| Variable cost of goods manufactured(110,000 units x $10 per unit) | $1,100,000 | |||
| Less ending inventory (20,000 unitsx $10 per unit) | 200,000 | |||
| Variablecost of goods sold | 900,000 | |||
| Manufacturingmargin | $360,000 | |||
| Variable selling andadministrative expenses | 12,000 | |||
| Contributionmargin | $348,000 | |||
| Fixed costs: | ||||
| Fixed manufacturing costs | $60,500 | |||
| Fixed selling and administrativeexpenses | 21,000 | 81,500 | ||
| Income fromoperations | $266,500 | |||
a. Prepare an absorption costing incomestatement. In your computations, round unit costs to two decimalplaces and round final answers to the nearest dollar.
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Related questions
On June 30, 2016, the end of the first month of operations,Tudor Manufacturing Co. prepared the following income statement,based on the variable costing concept:
Tudor Manufacturing Co. |
Income Statement - Variable Costing |
For the Month Ended June 30, 2016 |
1 | Sales (415,000 units) | $6,950,000.00 | |
2 | Variable cost of goods sold: | ||
3 | Variable cost of goods manufactured (500,000 units à $13 perunit) | $6,500,000.00 | |
4 | Less ending inventory (85,000 units à $13 per unit) | 1,105,000.00 | |
5 | Variable cost of goods sold | 5,395,000.00 | |
6 | Manufacturing margin | $1,555,000.00 | |
7 | Variable selling and administrative expenses | 79,000.00 | |
8 | Contribution margin | $1,476,000.00 | |
9 | Fixed costs: | ||
10 | Fixed manufacturing costs | $140,000.00 | |
11 | Fixed selling and administrative expenses | 76,000.00 | 216,000.00 |
12 | Income from operations | $1,260,000.00 |
| Required: | |
| A. | Prepare an absorption costingincome statement. In your computations, round unit costs to twodecimal places and round final answers to the nearestdollar. |
| B. | Reconcile the variable costingincome from operations of $1,260,000 with the absorption costingincome from operations determined in (A). Enter all amounts aspositive numbers. |
Income Statements under Absorption and Variable Costing
Shawnee Motors Inc. assembles and sells MP3 players. The companybegan operations on August 1 and operated at 100% of capacityduring the first month. The following data summarize the resultsfor August:
| Sales (18,500 units) | $2,960,000 | ||||
| Production costs (24,000 units): | |||||
| Directmaterials | $1,420,800 | ||||
| Directlabor | 681,600 | ||||
| Variablefactory overhead | 340,800 | ||||
| Fixedfactory overhead | 228,000 | 2,671,200 | |||
| Selling and administrative expenses: | |||||
| Variableselling and administrative expenses | $414,000 | ||||
| Fixedselling and administrative expenses | 160,300 | 574,300 | |||
If required, round interim per-unit calculations to the nearestcent.
a. Prepare an income statement according to theabsorption costing concept.
| Shawnee Motors Inc. | |
| Absorption Costing Income Statement | |
| Forthe Month Ended August 31 | |
| Sales | $ |
| Cost of goods sold | |
| Gross profit | $ |
| Selling and administrativeexpenses | |
| Income fromoperations | $ |
Feedback
b. Prepare an income statement according to thevariable costing concept.
| Shawnee Motors Inc. | ||
| Variable Costing Income Statement | ||
| Forthe Month Ended August 31 | ||
| Sales | $ | |
| Variable cost of goodssold | ||
| Manufacturing margin | $ | |
| Variable selling and administrativeexpenses | ||
| Contribution margin | $ | |
| Fixed costs: | ||
| Fixed factoryoverhead | $ | |
| Fixed selling and administrativeexpenses | ||
| Total fixed costs | ||
| Income fromoperations | $ | |
Feedback
c. What is the reason for the difference in theamount of income from operations reported in (a) and (b)?
Under the absorption costing method, the fixedmanufacturing cost included in the cost of goods sold is matchedwith the revenues. Under variable costing , all ofthe fixed manufacturing cost is deducted in the period in which itis incurred, regardless of the amount of inventory change. Thus,when inventory increases, the absorption costingincome statement will have a higher income from operations thanwill the variable costing income statement.
Bell Company manufactures and sells a single product. Cost datafor the product follow: |
| Variable costs perunit: | ||
| Direct materials | $ | 3 |
| Direct labor | 12 | |
| Variable factory overhead | 3 | |
| Variable selling andadministrative | 3 | |
| Total variable costsper unit | $ | 21 |
| Fixed costs permonth: | ||
| Fixed manufacturingoverhead | $ | 120,000 |
| Fixed selling andadministrative | 166,000 | |
| Total fixed cost permonth | $ | 286,000 |
The product sells for $48 per unit.Production and sales data for May and June, the first two months ofoperations, are as follows: |
| Units Produced | Units Sold | |
| May | 24,000 | 20,000 |
| June | 24,000 | 28,000 |
Income statements prepared by theaccounting department, using absorption costing, are presentedbelow: |
| May | June | |||
| Sales | $ | 960,000 | $ | 1,344,000 |
| Cost of goodssold | 460,000 | 644,000 | ||
| Gross margin | 500,000 | 700,000 | ||
| Selling andadministrative expenses | 226,000 | 250,000 | ||
| Net operatingincome | $ | 274,000 | $ | 450,000 |
| Required: |
| 1. | Determine the unit product cost under absorption costing andvariable costing. |
| Unit Product Cost | ||
| Absorption costing | ||
| Variablecosting | ||
| 2. | Prepare contribution format variable costing income statementsfor May and June. (Input all amounts as positive valuesexcept losses which should be indicated by a minussign.) |
| Variable Costing Income Statement | ||
| May | June | |
| (Click toselect)SalesFixed manufacturing overheadVariable cost of goodssoldNet operating income (loss)Contribution marginFixed selling andadministrative expensesVariable selling and administrativeexpenses | $ | $ |
| Variableexpenses: | ||
| (Click toselect)SalesContribution marginNet operating income (loss)Variablecost of goods soldFixed selling and administrative expensesDirectmaterialsFixed manufacturing overhead | ||
| (Click toselect)Contribution marginSalesFixed selling and administrativeexpensesFixed manufacturing overheadNet operating income(loss)Variable selling and administrative expensesDirectmaterials | ||
| Total variableexpenses | ||
| (Click toselect)Gross marginContribution margin | ||
| Fixed expenses: | ||
| (Click to select)Variableselling and administrative expensesFixed manufacturingoverheadDirect materialsContribution marginSalesNet operatingincome (loss)Variable cost of goods sold | ||
| (Click to select)Fixedselling and administrative expensesVariable cost of goodssoldDirect materialsVariable selling and administrative expensesNetoperating income (loss)Contribution marginSales | ||
| Total fixedexpenses | ||
| Net operating income(loss) | $ | $ |
| 3. | Reconcile the variable costing and absorption costing netoperating incomes. (Loss amounts and amounts to be deductedshould be indicated with a minus sign.) |
| Reconciliation of Variable Costing and Absorption Costing NetOperating Incomes | ||
| May | June | |
| Variable costing netoperating income (loss) | $ | $ |
| Add (deduct) fixedmanufacturing overhead cost deferred in (released from) inventory under absorption costing | ||
| Absorption costingnet operating income (loss) | $ | $ |
