Question

Hallstead Jewelers; Income Statements for Years Ended January 31 (thousands of dollars) 2003 2004 2006 Sales $8,583 $8,102 $10,711 Cost of goods sold 4,326 4,132 5,570 Gross margin $4,257 $3,970 $ 5,141 Expenses Selling expense Salaries 2,021 2,081 3,215 Commissions 429 405 536 Advertising 254 250 257 Administrative expenses 418 425 435 Rent 420 420 840 Depreciation 84 84 142 Miscellaneous expenses 53 93 122 Total expenses $3,679 $3,758 $ 5,547 Net income $ 578 $ 212 $ (406)

1. Exhibit 1 shows the Income Statements for the years ending January 31^st, 2003, 2004 and 2006 using absorption costing. Generate Income Statements using Variable Costing. Assume that cost of goods sold and commissions are variable.

Answer 1

Below mentioned is the Income Statement using Variable Costing for the period endling 31st January 2003,2004 & 2006.

Net Income = Revenue - Total Variable Cost - Total Fixed Cost

( All figures in $)

	Income Statement
	for the year ending 31st january 2003,2004 and 2006
	Particulars		2003	2004	2006
Sales			8583	8102	10711
less: Variable Cost
	Cost of Goods Sold		4326	4132	5570
	Commission		429	405	536
Total variable cost		4755	4537	6106
Contribution Margin(Sales - Total variable Cost)		3828	3565	4605
less:Fixed Cost
	Administrative Expense		418	425	435
	Advertising		254	250	257
	salaries		2021	2081	3215
	Rent		420	420	840
	Depreciation		84	84	142
	miscellaneous Expense		53	93	122
TotalFixed Cost		3250	3353	5011
Operating Income/Loss (Contribution Margin - TotalFixed Cost)	578	212	-406