Question

Midias Mechanical Company reconditions motors for Drift Racing cars. They bought a shipping container of 500 motors from Japan (model number ZF290) for $1,000,000. The reconditioning cost of each motor is $900 and the recomputing cost of each motor is $700. Commission on sales was paid to the head mechanic of Race Teams, at $80 per motor.

The average sale price of a ZF290 motor is $11,000. Administrative costs was $88,500 each year. In 2017, Midias Mechanical Company sold 100 motors and in 2018 sold 250 motors.

Requirement:

Prepare Absorption Income Statement for 2017

Prepare Absorption Income Statement for 2018

Prepare Variable Income Statement for 2017

Prepare Variable Income Statement for 2018

Note: you are required to show your workings

Answer 1

Answer - Given Information
Variable Cost
		Cost	Unit	Per Unit Cost
Cost of Motor		1,000,000.00	500	2000
Reconditioning Cost				900
Recomputing cost				700
Sales Commission				80
Fixed Cost		88500
Absorption Income Statement
		Working	2017	Working	2018
Sales		11000*80	880,000	11000*250	2,750,000
Variable Cost
Cost of Goods Sold		=100*900	90000	=250*900	225000
Recomputing cost		=100*700	70000	=250*700	175000
Gross Profit			720,000		2,350,000
Sales Commission		=100*80	8000	=250*80	20000
Admin Cost			88500		88500
Net Profit			623,500		2,241,500
Variable Income Statement
		Working	2017	Working	2018
Sales		11000*80	880,000	11000*250	2,750,000
Variable Cost
Cost of Goods Sold		=100*900	90000	=250*900	225000
Recomputing cost		=100*700	70000	=250*700	175000
Sales Commission		=100*80	8000	=250*80	20000
Total Variable Cost			168000		420000
Contribution Margin		=880000-168000	712,000	=2750000-420000	2,330,000
Fixed Admin Cost			88500		88500
Net Profit			623,500		2,241,500