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		$

Previous

Answer 1

• All working forms part of the answer
• Under absorption costing, fixed manufacturing cost becomes part of the produce cost.
  Cost of unit produced for Absorption costing=
  Total manufacturing cost = $655,000
  Total units produced = 50,000

Manufacturing cost per unit for cost of goods sold calculation = 655000 / 50000 = $13.1 per unit

• Requirement ‘a’

Townsend Co.
Absorption Costing Income Statement
For Month Ended January 31, 20--
Sales [42000 x $18]		$             7,56,000.00
Cost of goods sold:
Cost of units produced [50000 x $13.1]	$              6,55,000.00
Less: Cost of ending Inventory [8000 x $13.1]	$           (1,04,800.00)
Cost of Goods Sold		$             5,50,200.00
Gross Profits		$             2,05,800.00
Total Selling & Admin expense		$                 45,500.00
Income from operations		$             1,60,300.00

• Requirement ‘b’

Townsend Co.
Variable Costing Income Statement
For Month Ended January 31, 20--
Sales [42000 x $18]		$          7,56,000.00
Variable cost of goods sold:
Variable manufacturing cost	$         5,75,000.00
Variable selling & admin cost	$            35,000.00
Total variable cost		$          6,10,000.00
Contribution Margin		$          1,46,000.00
Fixed costs:
Fixed manufacturing cost	$            80,000.00
Fixed selling & admin cost	$            10,500.00
Total fixed cost		$              90,500.00
Income from operations		$              55,500.00