Question

The following information was collected for the first year of manufacturing for Appliance Apps:

Direct Materials per Unit	$2.25
Direct Labor per Unit	$1.50
Variable Manufacturing Overhead per Unit	$0.25
Variable Selling and Administration Expenses	$1.75
Units Produced	40,000
Units Sold	36,000
Sales Price	$12
Fixed Manufacturing Expenses	$120,000
Fixed Selling and Administration Expenses	$20,000

Prepare an income statement under the variable costing method.

Appliance Apps
Income Statement
Sales	$fill in the blank 3d2933f2afa0fe1_2
Variable Cost of Goods Sold	fill in the blank 3d2933f2afa0fe1_4
Gross Contribution Margin	$fill in the blank 3d2933f2afa0fe1_6
Variable Selling and Administration Expenses	fill in the blank 3d2933f2afa0fe1_8
Contribution Margin	$fill in the blank 3d2933f2afa0fe1_10
Fixed Manufacturing Expenses	fill in the blank 3d2933f2afa0fe1_12
Fixed Selling and Administration Expenses	fill in the blank 3d2933f2afa0fe1_14
Net Income	$fill in the blank 3d2933f2afa0fe1_16

Prepare a reconciliation to the income under the absorption method.

Appliance Apps
Reconciliation
Net Income under Variable Costing	$fill in the blank 250cf904ef87028_2
Add: Fixed Manufacturing Overhead Deferred	fill in the blank 250cf904ef87028_4
Net Income under Absorption Costing	$fill in the blank 250cf904ef87028_6

Answer 1

Requirement 1:

APPLIANCE APPS

INCOME STATEMENT

Under Variable Costing Method

Particulars	$
Sales (36,000 Units * $12)	432,000
Less: Variable cost of goods sold (36,000 Units * $4.00)	144,000
Gross Contribution Margin	288,000
Less: Variable selling and administrative expenses (36,000 Units * $1.75)	63,000
Contribution Margin	225,000
Less: Fixed manufacturing expenses	120,000
Less: Fixed selling and administrative expenses	20,000
Net Income	85,000

Working Notes:

Variable cost of goods sold per unit

Particulars	$
Direct Material per unit	2.25
Direct labor per unit	1.50
Variable manufacturing overhead per unit	0.25
Total Variable cost of goods sold per unit	4.00

Requirement 2:

Particulars	$
Net Income under variable costing	85,000
Add: Fixed Manufacturing overhead Deferred (4,000 Units * $3 per unit)	12,000
Net Income under Absorption Costing	97,000

Working Notes:

Ending Inventory (Units) = 40,000 Units - 36,000 Units = 4,000 Units

Fixed Manufacturing overhead cost per unit = $120,000 / 40,000 Units = $3 per unit