Question

Appliance Apps has the following costs associated with its production and sale of devices that allow appliances to receive commands from cell phones.

Beginning Inventory	0
Units Produced	24,000
Units Sold	19,200
Selling Price per Unit	$146
Variable Sales and Administration Expenses	$4
Fixed Sales and Administration Expenses	$936,000
Direct Material Cost per Unit	$26
Direct Labor Cost per Unit	$10
Variable Manufacturing Overhead Cost per Unit	$2
Fixed Manufacturing Overhead Cost per Month	$938,400

Prepare an income statement under the absorption method. If an amount box does not require an entry, leave it blank.

Appliance Apps
Income Statement: Absorption
Sales		$fill in the blank ad48aaf9a038021_2
Cost of Goods Sold:
Beginning Inventory	$fill in the blank ad48aaf9a038021_4
Cost of Goods Manufactured	fill in the blank ad48aaf9a038021_6
Cost of Goods Available for Sale	$fill in the blank ad48aaf9a038021_8
Ending Inventory	fill in the blank ad48aaf9a038021_10
Total Cost of Goods Sold		fill in the blank ad48aaf9a038021_11
Gross Profit		$fill in the blank ad48aaf9a038021_13
Sales and Administrative Expenses:
Variable	$fill in the blank ad48aaf9a038021_14
Fixed	fill in the blank ad48aaf9a038021_15
Total Fixed Sales and Administrative Expenses		fill in the blank ad48aaf9a038021_17
Net Operating Income		$fill in the blank ad48aaf9a038021_19

Feedback

Absorption costing includes all costs necessary for production. Conversely, variable costing only uses the variable costs that relate directly to the production process. Keep this in mind when calculating net income under each assumption. Depending on the cost method chosen, there will be differences due to the way fixed costs are treated under each method (absorption and variable).

Prepare an income statement under the variable costing method. If an amount box does not require an entry, leave it blank.

Appliance Apps
Income Statement: Variable
Sales		$fill in the blank d507eef13ffefa4_2
Cost of Goods Sold:
Beginning Inventory	$fill in the blank d507eef13ffefa4_4
Cost of Goods Manufactured	fill in the blank d507eef13ffefa4_6
Cost of Goods Available for Sale	$fill in the blank d507eef13ffefa4_8
Ending Inventory	fill in the blank d507eef13ffefa4_10
Total Cost of Goods Sold		fill in the blank d507eef13ffefa4_11
Gross Contribution Margin		$fill in the blank d507eef13ffefa4_13
Sales and Administrative Expenses:
Variable		fill in the blank d507eef13ffefa4_14
Contribution Margin		$fill in the blank d507eef13ffefa4_16
Fixed Sales and Administrative Expenses	$fill in the blank d507eef13ffefa4_18
Fixed Manufacturing	fill in the blank d507eef13ffefa4_20
Total Fixed Sales and Administrative Expenses		fill in the blank d507eef13ffefa4_22
Net Operating Income		$fill in the blank d507eef13ffefa4_24

Prepare a reconciliation between the two statements.

Reconciliation
Net Income under Variable Costing	$fill in the blank b0ecc408ef8405a_2
Add: Fixed Manufacturing Overhead Deferred	fill in the blank b0ecc408ef8405a_4
Net Income under Absorption	$fill in the blank b0ecc408ef8405a_6

Answer 1

Appliance Apps
Income Statement: Absorption
Sales		$         2,803,200
Cost of Goods Sold:
Beginning Inventory	$                     -
Cost of Goods Manufactured	$       1,850,400
Cost of Goods Available for Sale	$       1,850,400
Ending Inventory	$          370,080
Total Cost of Goods Sold		$         1,480,320
Gross Profit		$        1,322,880
Sales and Administrative Expenses:
Variable	$            76,800
Fixed	$          936,000
Total Fixed Sales and Administrative Expenses		$         1,012,800
Net Operating Income		$            310,080

Appliance Apps
Income Statement: Variable
Sales		$         2,803,200
Cost of Goods Sold:
Beginning Inventory	$                     -
Cost of Goods Manufactured	$          912,000
Cost of Goods Available for Sale	$          912,000
Ending Inventory	$          182,400
Total Cost of Goods Sold		$            729,600
Gross Contribution Margin		$        2,073,600
Sales and Administrative Expenses:
Variable		$              76,800
Contribution Margin		$        1,996,800
Fixed Sales and Administrative Expenses	$          936,000
Fixed Manufacturing	$          938,400
Total Fixed Sales and Administrative Expenses		$         1,874,400
Net Operating Income		$            122,400

Reconciliation
Net Income under Variable Costing	$          122,400
Add: Fixed Manufacturing Overhead Deferred	$          187,680
Net Income under Absorption	$          310,080