Question

Income Statements under Absorption Costing and Variable Costing

Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (61,600 units) during the first month, creating an ending inventory of 5,600 units. During June, the company produced 56,000 garments during the month but sold 61,600 units at $90 per unit. The June manufacturing costs and selling and administrative expenses were as follows:

	Number of Units		Unit Cost		Total Cost
Manufacturing costs in June 1 beginning inventory:
Variable	5,600		$36.00		$201,600
Fixed	5,600		14.00		78,400
Total			$50.00		$280,000
Manufacturing costs in June:
Variable	56,000		$36.00		$2,016,000
Fixed	56,000		15.40		862,400
Total			$51.40		$2,878,400
Selling and administrative expenses in June:
Variable	61,600		18.20		$1,121,120
Fixed	61,600		7.00		431,200
Total			25.20		$1,552,320

a. Prepare an income statement according to the absorption costing concept for June.

Joplin Industries Inc.
Absorption Costing Income Statement
For the Month Ended June 30
Sales		$
Cost of goods sold:
Beginning inventory	$
Cost of goods manufactured
Total cost of goods sold
Gross profit		$
Selling and administrative expenses
Income from operations		$

b. Prepare an income statement according to the variable costing concept for June.

Joplin Industries Inc.
Variable Costing Income Statement
For the Month Ended June 30
Sales		$
Variable cost of goods sold
Manufacturing margin		$
Variable selling and administrative expenses
Contribution margin		$
Fixed costs:
Fixed manufacturing costs	$
Fixed selling and administrative expenses
Total fixed costs
Income from operations		$

Answer 1

a
Joplin Industries Inc.
Absorption Costing Income Statement
For the Month Ended June 30
Sales		5544000	=61600*90
Cost of goods sold:
Beginning inventory	280000
Cost of goods manufactured	2878400
Total cost of goods sold		3158400
Gross profit		2385600
Selling and administrative expenses		1552320
Income from operations		833280
b
Joplin Industries Inc.
Variable Costing Income Statement
For the Month Ended June 30
Sales		5544000
Variable cost of goods sold		2217600	=201600+2016000
Manufacturing margin		3326400
Variable selling and administrative expenses		1121120
Contribution margin		2205280
Fixed costs:
Fixed manufacturing costs	862400
Fixed selling and administrative expenses	431200
Total fixed costs		1293600
Income from operations		911680