Question

Variable Costing Income Statement On July 31, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept: Sales (24,000 units) $1,224,000 Cost of goods sold: Cost of goods manufactured $971,500 Less ending inventory (5,000 units) 167,500 Cost of goods sold 804,000 Gross profit $420,000 Selling and administrative expenses 136,000 Income from operations $284,000 a. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $87,000 and the variable selling and administrative expenses were $62,000. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar. Rhys Company Income Statement-Variable Costing For the Month Ended July 31 $ Variable cost of goods sold: $ $ $ Fixed costs: $ Income from operations $ b. Reconcile the absorption costing income from operations of $284,000 with the variable costing income from operations determined in (a). Reconciliation of Absorption and Variable Costing Income Absorption costing income from operations $ Variable costing income from operations Difference $ Check My Work PreviousNext

Answer 1

Solution a:

Total Units Manufactured = 24000 + 5000 = 29,000 units

Total Cost of goods manufactured = $971,500

Fixed Manufacturing overhead = $87,000

Variable manufacturing cost of 29000 units = $971500 - $87000 = $884,500

Variable manufacturing cost per unit = $884,500 / 29000 = $30.50 per unit

Fixed manufacturing overhead per unit = $87000 / 29000 = $3 per unit

Rhys Company
Income Statement - Variable Costing
Particulars	Amount
Sales	$12,24,000
Variable Costs:
Variable Manufacturing Cost ($30.50*24000)	$7,32,000
Variable Selling and administrative expenses	$62,000
Total Variable Costs	$7,94,000
Contribution Margin	$4,30,000
Fixed Expenses:
Fixed manufacturing overhead	$87,000
Fixed Selling & Administrative Expenses ($136000-$62000)	$74,000
Net Operating Income	$2,69,000

Solution b:

Reconciliation of Net Operating income under absorption costing & Variable Costing
Particulars	Amount
Variable Costing Income (Loss)	$2,69,000
Add : Fixed manufacturing overhead deferred in ending inventory ($3*5000)	$15,000
Less: Fixed manufacturing overhead released in beginning inventory	$0
Absorption Costing Income (Loss)	$2,84,000