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.
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. |
Related questions
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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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.
| Selling price | $ | 109 |
| Units in beginning inventory | 540 | |
| Units produced | 6,950 | |
| Units sold | 6,910 | |
| Units in ending inventory | 580 | |
| Variable costs per unit: | ||
| Direct materials | $ | 39.2 |
| Direct labor | $ | 26.8 |
| Variable manufacturing overhead | $ | 2.4 |
| Variable selling andadministrative | $ | 7.4 |
| Fixed costs: | ||
| Fixed manufacturing overhead | $ | 45,870 |
| Fixed selling and administrative | $ | 82,100 |
| c. | Prepare a contribution format income statement for the month usingvariable costing. (Do not round intermediate calculations and round your finalanswers to the nearest dollar amount. Input all amounts as positivevalues. Omit the "$" sign in your response.) |
| Variable costing income statement | ||
| (Click to select)SalesFixed selling andadministrativeNet operating incomeContribution marginFixedmanufacturing overhead | $ | |
| Variable expenses: | ||
| (Click to select)Variable cost ofgoods soldVariable selling and administrativeFixed manufacturingoverheadSalesFixed selling and administrative | $ | |
| (Click to select)SalesVariable costof goods soldFixed manufacturing overheadFixed selling andadministrativeVariable selling and administrative | ||
| (Click to select)Contribution lossContributionmargin | ||
| Fixed expenses: | ||
| (Click to select)Cost of goodssoldFixed selling and administrativeVariable cost of goodssoldSelling and administrative expensesFixed manufacturingoverhead | ||
| (Click to select)Fixed manufacturingoverheadSelling and administrative expensesCost of goods soldFixedselling and administrativeVariable cost of goods sold | ||
| (Click to select)Net operating lossNet operatingincome | $ | |
| | ||
