Question

Absorption Costing Income Statement

On June 30, 2016, the end of the first month of operations, Smithey Manufacturing Co. prepared the following income statement, based on the variable costing concept:

Sales (90,000 units)				$990,000
Variable cost of goods sold:
	Variable cost of goods manufactured (110,000 units x $8 per unit)	$880,000
	Less ending inventory (20,000 units x $8 per unit)	160,000
	Variable cost of goods sold			720,000
Manufacturing margin				$270,000
Variable selling and administrative expenses				9,000
Contribution margin				$261,000
Fixed costs:
	Fixed manufacturing costs	$27,500
	Fixed selling and administrative expenses	17,000		44,500
Income from operations				$216,500

a. Prepare an absorption costing income statement. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar.

Smithey Manufacturing Co.
Income Statement-Absorption Costing
For the Month Ended June 30, 2016
Sales		$
Cost of goods sold:
Cost of goods manufactured	$
Less ending inventory
Cost of goods sold
Gross profit		$
Selling and administrative expenses
Income from operations		$

b. Reconcile the variable costing income from operations of $216,500 with the absorption costing income from operations determined in (a).

Reconciliation of Variable and Absorption Costing Income
Variable costing income from operations	$
Absorption costing income from operations
Difference	$

Answer 1