Question

On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January:

		Units
Production		50,000
Sales ($18 per unit)		42,000
Inventory, January 31		8,000
Manufacturing costs:
Variable		$575,000
Fixed		80,000
Total		$655,000
Selling and administrative expenses:
Variable		$35,000
Fixed		10,500
Total		$45,500

a. Prepare an income statement using absorption costing.

Townsend Co.
Absorption Costing Income Statement
For Month Ended January 31, 20--
		$
Cost of goods sold:
	$
		$
Income from operations		$

b. Prepare an income statement using variable costing.

Townsend Co.
Variable Costing Income Statement
For Month Ended January 31, 20--
		$
Variable cost of goods sold:
	$
		$
		$
Fixed costs:
	$
Income from operations		$

Answer 1

product cost = 655000/50000=			13.1
Absorption costing income statement
Sales		(42,000*18)					756000
cost of goods sold:
Cost of goods manufactured						655000
less, inventory jan 31			(8000*13.10)			104800
cost of goods sold:							550200
gross profit							205800
less:Selling and administrative expense							45,500
net income							160,300
Variable costing income statement
sales							756,000
variable cost of goods sold
cost of goods manufactued						575,000
less inventory , jan 31			(575000/50000)*8000			92000
variable cost of goods sold							483,000
manufacturing margin							273,000
less variable selling expense							35,000
contribution margin							238,000
fixed costs
fixed manufacturing costs						80,000
fixed selling and administrative costs						10,500
							90,500
net income							147,500