Question

Absorption and Variable Costing Income Statements: Production Exceeds Sales

Glendale Company sells its product at a unit price of $12.00. Unit manufacturing costs are direct materials, $2.00; direct labor, $3.00; and variable manufacturing overhead, $1.50. Total fixed manufacturing costs are $30,000 per year. Selling and administrative expenses are $1.00 per unit variable and $11,000 per year fixed. During 2009, 25,000 units were produced and sold. There was no beginning inventory.

(a) Prepare a functional income statement using absorption costing. (Do not use negative signs with your answers.)

Glendale Company Functional (Absorption Costing) Income Statement For the year 2009
Sales		Answer
Cost of goods sold		Answer
Gross profit		Answer
Other expenses:
Variable selling and administrative	Answer
Fixed selling and administrative	Answer	Answer
Net income		Answer

(b) Prepare a contribution income statement using variable costing. (Do not use negative signs with your answers.)

Glendale Company Contribution (Variable Costing) Income Statement For the year 2009
Sales		Answer
Variable expenses:
Cost of goods sold	Answer
Selling and administrative	Answer	Answer
Contribution margin		Answer
Fixed expenses:
Manufacturing overhead	Answer
Selling and administrative	Answer	Answer
Net income		Answer

Answer 1

Absorption Costing
Year 1
Direct material	2
Direct Labor	3
Variable Manufacturing Overhead	1.5
Fixed Manufacturing Overhead	1.2
	7.7

Absorption Costing Income Statement
		Year 1
Sales		300000
Beginning Invenotry	0
Add: Cost of goods manufactured	192500
Goods available for sale	192500
Less: Ending Inventory	0
Cost of goods sold		192500
Gross Profit		107500
Selling and administrative cost	36000
Net operating income		71500

Variable Costing
Year 1
Direct material	2
Direct Labor	3
Variable Manufacturing Overhead	1.5
Unit Product cost	6.5

Variable Costing Income Statement
		Year 1
Sales		300000
Less: Variable Expenses
Beginning Invenotry	0
Add: Cost of goods manufactured	162500
Goods available for sale	162500
Less: Ending Inventory	0	162500
Variable cost of goods sold		137500
Variable selling and administrative cost	25000
Contribution Margin		112500
Less: Fixed Expenses
Manufacturing Overhead	30000
Selling and administrative	11000	41000
Net operating income		71500