Question

Income Statements under Absorption Costing and Variable Costing

Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (62,700 units) during the first month, creating an ending inventory of 5,700 units. During February, the company produced 57,000 units during the month but sold 62,700 units at $80 per unit. The February manufacturing costs and selling and administrative expenses were as follows:

	Number of Units		Unit Cost		Total Cost
Manufacturing costs in February 1 beginning inventory:
Variable	5,700		$32.00		$182,400
Fixed	5,700		12.00		68,400
Total			$44.00		$250,800
Manufacturing costs in February:
Variable	57,000		$32.00		$1,824,000
Fixed	57,000		13.20		752,400
Total			$45.20		$2,576,400
Selling and administrative expenses in February:
Variable	62,700		$15.60		$978,120
Fixed	62,700		7.00		438,900
Total			$22.60		$1,417,020

a. Prepare an income statement according to the absorption costing concept for the month ending February 28.

Fresno Industries Inc.
Absorption Costing Income Statement
For the Month Ended February 28
		$
Cost of goods sold:
	$
		$
		$

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a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead.

b. Prepare an income statement according to the variable costing concept for the month ending February 28.

Fresno Industries Inc.
Variable Costing Income Statement
For the Month Ended February 28
		$
		$
		$
Fixed costs:
	$
		$

Answer 1