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Exercise 6-17 Siren Company builds custom fishing lures for sporting goods stores. In its first year...

Exercise 6-17

Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2020, the company incurred the following costs.

Variable Costs per Unit
Direct materials $7.80
Direct labor $3.59
Variable manufacturing overhead $6.03
Variable selling and administrative expenses $4.06
Fixed Costs per Year
Fixed manufacturing overhead $244,400
Fixed selling and administrative expenses $218,504


Siren Company sells the fishing lures for $26.00. During 2020, the company sold 80,000 lures and produced 94,000 lures.

Prepare a variable costing income statement for 2020.

Prepare an absorption costing income statement for 2020.

Solutions

Expert Solution

Variable costing income statement :-

Particulars calculations amount ($)
Sales 80000 × 26 2080000
Less :- direct material 80000 ×7.8 (624000)
Less :- direct labour 80000 × 3.59 (287200)
Less :- Variable manufacturing overhead 80000 × 6.03 (482400)
Less :- Variable selling and administrative expenses 80000 × 4.06 (324800)
Less:- closing stock (as we have taken all the cost as per unit basis then the closing stock stock should not be deducted) 0 0
Contribution 361600
Less :- Fixed manufacturing overhead (244400)
Less :- Fixed selling and administrative expenses (218504)
Net income (loss) (101304)

Net loss as per variable costing = 101304

Absorption costing income statement :-

Particulars calculations Amount ($)
Sales 80000 × 26 2080000
Less :- direct material 90000 × 7.80 (624000)
Less :- direct labour 90000 × 3.59 (287200)
Less :- variable manufacturing overhead 90000 × 6.03 (482400)
Less :- variable selling and administrative expenses 90000 × 4.06 (324800)
Less :- fixed manufacturing overhead (244400)
Less :- fixed selling and administrative expenses expenses (218504)
Add:- closing stock 462904 × (16000 ÷ 96000) 77151
Net income (loss) 24153

Net loss as per absorption costing = 24153

These are all the information required to solve the above given question.

If there is any clarifications required regarding the above provided answer, please mention them in comment box.

I hope, all the above provided explanations and calculations are useful and helpful to you.

Thank you.

ekkarill92 answered 2 years ago
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