Question

During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 40,000 mini refrigerators, of which 36,000 were sold. Operating data for the month are summarized as follows:

1	Sales		$8,280,000.00
2	Manufacturing costs:
3	Direct materials	$2,800,000.00
4	Direct labor	1,200,000.00
5	Variable manufacturing cost	800,000.00
6	Fixed manufacturing cost	440,000.00	5,240,000.00
7	Selling and administrative expenses:
8	Variable	$540,000.00
9	Fixed	216,000.00	756,000.00

	Required:
1.	Prepare an income statement based on the absorption costing concept.*
2.	Prepare an income statement based on the variable costing concept.*
3.	Explain the reason for the difference in the amount of income from operations reported in (1) and (2). * Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Enter Inventory, August 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Prepare an income statement based on the absorption costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Enter Inventory, August 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Kodiak Fridgeration Company

Absorption Costing Income Statement

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Prepare an income statement based on the variable costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Enter Inventory, August 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.

Kodiak Fridgeration Company

Variable Costing Income Statement

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Labels
August 31
Cost of goods sold
Fixed costs
For the Month Ended August 31
Variable cost of goods sold
Amount Descriptions
Contribution margin
Contribution margin ratio
Cost of goods manufactured
Fixed manufacturing costs
Fixed selling and administrative expenses
Gross profit
Income from operations
Inventory, August 31
Loss from operations
Manufacturing margin
Planned contribution margin
Sales
Sales mix
Selling and administrative expenses
Total cost of goods sold
Total fixed costs
Total variable cost of goods sold
Variable cost of goods manufactured
Variable selling and administrative expenses

Answer 1

Solution 1:

Kodiak Fridgeration Company
Income Statement - Absorption Costing
Particulars	Amount
		Sales	$82,80,000.00
Less: Cost of Goods Sold ($5240000/40000*36000)	$47,16,000.00
Gross Profit	$35,64,000.00
Less: Selling and administrative expenses:
Variable Selling and administrative expense	$5,40,000.00
Fixed Selling and administrative expense	$2,16,000.00
Net Operating Income	$28,08,000.00

Solution 2:

Kodiak Fridgeration Company
Income Statement - Variable Costing
Particulars	January
Sales	$82,80,000.00
Variable Costs:
Variable manufacturing Costs [($2800000+1200000+800000)/40000*36000]	$43,20,000.00
Variable Selling and administrative expenses	$5,40,000.00
Total Variable Costs	$48,60,000.00
Contribution Margin	$34,20,000.00
Fixed Expenses:
Fixed manufacturing overhead	$4,40,000.00
Fixed Selling & Administrative Expenses	$2,16,000.00
Net Operating Income	$27,64,000.00

Solution 3:

Reconciliation
Particulars	Amount
Net Operating Income - Variable Costing	$27,64,000.00
Add : Fixed manufacturing overhead deferred in inventory ($440000/40000*4000)	$44,000.00
Net Operating Income - Absorption Costing	$28,08,000.00