Question

Absorption Costing Income Statement

On March 31, the end of the first month of operations, Sullivan Equipment Company prepared the following income statement, based on the variable costing concept:

Sullivan Equipment Company Variable Costing Income Statement For the Month Ended March 31
Sales (13,000 units)			$572,000
Variable cost of goods sold:
Variable cost of goods manufactured	$266,400
Inventory, March 31 (1,800 units)	(32,400)
Total variable cost of goods sold			234,000
Manufacturing margin			$338,000
Variable selling and administrative expenses			143,000
Contribution margin			$195,000
Fixed costs:
Fixed manufacturing costs	$59,200
Fixed selling and administrative expenses	39,000
Total fixed costs			98,200
Income from operations			$96,800

Prepare an income statement under absorption costing. Round all final answers to whole dollars.

Sullivan Equipment Company
Absorption Costing Income Statement
For the Month Ended March 31
		$
Cost of goods sold:
	$
		$
		$

Answer 1

Answer:-

Sullivan Equipment Company
Contribution Margin statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	13000 units*$44 per unit		572000
Less:- Variable cost of goods sold (b)
Opening inventory
Add:- Variable cost of goods manufatured	14800 units*$22 per unit	325600
Variable cost of goods available for sale		325600
Less:- Closing inventory	1800 units*$22 per unit	39600	286000
Gross contribution margin C= a-b			286000
Less:-Variable selling & administrative exp.			143000
Contribution margin			143000
Less:- Fixed costs
Selling & administrative exp.			39000
Net Income			104000

Explanation:- Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$59200/(13000 units+1800 units) =$4 per unit

Unit product cost under Absorption costing:-Direct materials + Direct Labor+Variable manufacturing overhead + fixed manufacturing overhead

=($266400/14800 units)+$4 = $22 per unit