In: Accounting
Income statements under absorption costing and variable costing
Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (181,000 units) during the first month, creating an ending inventory of 17,000 units. During February, the company produced 164,000 units during the month but sold 181,000 units at $600 per unit. The February manufacturing costs and selling and administrative expenses were as follows:
Number of Units | Unit Cost | Total Cost |
||||
Manufacturing costs in February 1 beginning inventory: | ||||||
Variable | 17,000 | $300.00 | $5,100,000 | |||
Fixed | 17,000 | 26.00 | 442,000 | |||
Total | $326.00 | $5,542,000 | ||||
Manufacturing costs in February: | ||||||
Variable | 164,000 | $300.00 | $49,200,000 | |||
Fixed | 164,000 | 30.00 | 4,920,000 | |||
Total | $330.00 | $54,120,000 | ||||
Selling and administrative expenses in February: | ||||||
Variable | 181,000 | 20.00 | $3,620,000 | |||
Fixed | 181,000 | 3.00 | 543,000 | |||
Total | 23.00 | $4,163,000 |
a. Prepare an income statement according to the absorption costing concept for February. Enter all amounts as positive numbers.
Fresno Industries Inc. | ||||
Absorption Costing Income Statement | ||||
For the Month Ended February 28 | ||||
Sales | $ | |||
Cost of goods sold: | ||||
Beginning inventory | $ | |||
Cost of goods manufactured | ||||
Total cost of goods sold | ||||
Gross profit | $ | |||
Selling and administrative expenses | ||||
Operating income | $ |
b. Prepare an income statement according to the variable costing concept for February. Enter all amounts as positive numbers.
Fresno Industries Inc. | ||||
Variable Costing Income Statement | ||||
For the Month Ended February 28 | ||||
Sales | $ | |||
Variable cost of goods sold | ||||
Manufacturing margin | $ | |||
Variable selling and administrative expenses | ||||
Contribution margin | $ | |||
Fixed costs: | ||||
Fixed manufacturing costs | $ | |||
Fixed selling and administrative expenses | ||||
Total fixed costs | ||||
Operating income |
a) | ||
Fresno Industries Inc. | ||
Absorption Costing Income Statement | ||
For the Month Ended February 28 | ||
Sales (181,000 units * $600 per unit) | $108,600,000 | |
Less: Cost of Goods Sold: | ||
Beginning Inventory | $5,542,000 | |
Cost of goods manufactured | $54,120,000 | |
Less: Ending Inventory (17,000 + 164,000 - 181,000) | $0 | |
Total Cost of Goods Sold | ($59,662,000) | |
Gross Profit | $48,938,000 | |
Less: Selling and administrative expenses | ($4,163,000) | |
Operating Income | $44,775,000 | |
b) | ||
Fresno Industries Inc. | ||
Variable Costing Income Statement | ||
For the Month Ended February 28 | ||
Sales (181,000 units * $600 per unit) | $108,600,000 | |
Less: Variable cost of goods sold ($5,100,000 + $49,200,000) | ($54,300,000) | |
Manufacturing margin | $54,300,000 | |
Less: Variable selling and administrative expenses | ($3,620,000) | |
Contribution margin | $50,680,000 | |
Less: Fixed manufacturing costs ($442,000 + $4,920,000) | ($5,362,000) | |
Less: Fixed selling and administrative expenses | ($543,000) | |
Total Fixed costs | ($5,905,000) | |
Operating Income | $44,775,000 |