Question
In: Accounting
Prepare income statements using variable costing and absorption costing. Alexandra Manufacturing manufactures a single product. Cost,...
Prepare income statements using variable costing and absorption costing.
Alexandra Manufacturing manufactures a single product. Cost, sales, and production information for the company and its single product is as follows:
Sales price per unit $49
Variable manufacturing costs per unit manufactured (DM,DL and variable MOH) $30
Variable operating expenses per unit sold $3
Fixed manufacturing overhead (MOH) in total for the year $114,000
Fixed operating expenses in total for the year $46,000
Units manufactured during the year 19,000 units
Units sold during the year 16,500 units
Requirement 1. Prepare an income statement for the upcoming year using variable costing.
Requirement 2. Prepare an income statement for the upcoming year using absorption costing.
Solutions
Expert Solution
Answer:1)-
| Alexandra Manufacturing | |||
| Income statement (Using variable costing approach) | |||
| Particulars | Amount | ||
| $ | |||
| Sales (a) | 16500 units*$49 per unit | 808500 | |
| Less:- Variable cost of goods sold (b) | |||
| Opening inventory | NIL | ||
| Add:- Variable cost of goods manufactured | 19000 units*$30 per unit | 570000 | |
| Variable cost of goods available for sale | 570000 | ||
| Less:- Closing inventory | 2500 units*$30 per unit | 75000 | 495000 |
| Gross contribution margin C= a-b | 313500 | ||
| Less:-Variable selling & administrative exp. | 16500 units*$3 per unit | 49500 | |
| Contribution margin | 264000 | ||
| Less:- Fixed costs | |||
| Manufacturing overhead | 114000 | ||
| Selling & administrative exp. | 46000 | ||
| Net Income | 104000 | ||
2)-
| Alexandra Manufacturing | |||
| Income statement (Using absorption costing approach) | |||
| Particulars | Amount | ||
| $ | |||
| Sales (a) | 16500 units*$49 per unit | 808500 | |
| Less:- Variable cost of goods sold (b) | |||
| Opening inventory | |||
| Add:- Variable cost of goods manufactured | 19000 units*$30 per unit | 570000 | |
| Fixed manufacturing overhead | 114000 | ||
| Variable cost of goods available for sale | 684000 | ||
| Less:- Closing inventory | 2500 units*$36 per unit | 90000 | 594000 |
| Gross contribution margin C= a-b | 214500 | ||
| Less:-Variable selling & administrative exp. | 16500 units*$3 per unit | 49500 | |
| Contribution margin | 165000 | ||
| Less:- Fixed costs | |||
| Selling & administrative exp. | 46000 | ||
| Net Income | 119000 | ||
Explanation:-
Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead
=$30+ $6= $36 per unit
Explanation:- Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced
=$114000/19000 units =$ 6 per unit
Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead
=$30 per unit
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