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Sprinkles Company: a) Prepare both an Absorption & Variable Costing Income Statement, given the following: (Provide...

Sprinkles Company:

a) Prepare both an Absorption & Variable Costing Income Statement, given the following: (Provide computations or excel attachment)

Total units= 85,000 kg

Consumer Price (including VAT): 148.20, Value Added Tax (25% of consumer price before tax): 29.64, Consumer Price before tax: 118.56, Retailer's Margin (27.5% of price to retailer): 25.57, UNIT PRICE to Retailer: 92.99

Cake Material: 10.67, Cake Labor: 10.25, Toppings Material: 5.55, Toppings Labor: Cabbage: 5.45, Packaging: 10.26, Transportation & Storage: 6.20, Margins & Discounts to Wholesalers (8% of price to retailer): 7.44, Sundry other variable costs: 8.10, Production Fixed Expenses ($10 per kilogram): 10.00, Advertising Expenses: 3.30, SG&A Expenses (4% of price to retailer): 3.72

Total Unit Cost: 80.94 , Margin per Unit: 12.05

b) Explain why Net income is different.

Solutions

Expert Solution

Income statement under Marginal Costing
Serial No. Particulars Amount Amount
A

Selling Price

( Unit price to retailers)

92.99
B Variable cost:
Cake Material 10.67
Cake Labour 10.25
Topping Material 5.55
Topping Labour 5.45
Packaging 10.36
Transportation and Storage 6.20
Other variable cost 8.10
Discount to wholesaler 7.44
C Contribution( A-B) 29.02
D Total contribution 85000 × C 2466700
E Fixed Costs :
Production Fixed cost ( 10×85000units) 850000
F Profit ( D-E) 1616700

Income statement under absorption Costing

No Particulars Amount A Profit as per marginal costing 1616700 B Indirect fixed costs: Advertisements ( 3.30 × 85000) 280500 SG & A (3.72×85000) 316200 C Profit ( A-B) 1020000

Absorption costing consider all direct and indirects costs.

While marginal costing considers only direct cost to production. Therefore , there is differnce in income statement

ekkarill92 answered 1 year ago
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