Question

Wingfoot Co. began operations on July 1, 2019. By the end of its first fiscal year, ended June 30, 2020, Wingfoot had sold 10,000 wingers. Selected data on operations for the year ended June 30, 2020, follow. (Any balance sheet figures are as at June 30, 2020.)

Selling price	$100
Wingers produced	18,000
Ending work in process	0
Total manufacturing overhead	$15,000
Wage rate	$8	per hour
Machine hours used	9,000
Wages payable	$20,000
Direct materials costs	$10	per kilogram
Selling and administrative expenses	$40,000

Additional information:

• 1.Each winger requires 2 kg of direct materials, 0.5 machine hours, and one direct labour hour.

• 2.Except for machinery depreciation of $5,000 and a $1,000 miscellaneous fixed cost, all manufacturing overhead is variable.

• 3.Except for $4,000 in advertising expenses, all selling and administrative expenses are variable.

• 4.The tax rate is 40%.

Instructions

Assume that the company uses variable costing and prepare a contribution-method income statement in good form for the year ended June 30, 2020.

Answer 1

Solution.

Variable cost per unit:

Direct material (2 kg. × $10 per kg.)	$20.00
Direct labour  (1 hr × $8 per hr)	8.00
Variable MOH [($15,000 – $6,000) ÷ 18,000 units]	0.50
Variable manufacturing cost per unit	28.50
Variable selling and admin [($40,000 – $4,000) ÷ 10,000]	3.60
	$32.10

WINGFOOT CO.

Variable Costing Income Statement

For the Year Ended June 30, 2020

                                                                                       

Sales in units		10,000
Sales ($100)		$1,000,000
Less:
Variable COGS ($28.50)	$285,000
Variable selling and administrative ($3.60)	36,000	321,000
Contribution Margin		679,000
Less:
Fixed manufacturing overhead	6,000
Fixed selling and administrative costs	4,000	10,000
Operating income before tax		$669,000
Income tax (40%)		267,600
Net income		$401,400