Question

Appliance Apps has the following costs associated with its production and sale of devices that allow appliances to receive commands from cell phones.

Beginning Inventory	0
Units Produced	26,000
Units Sold	20,800
Selling Price per Unit	$144
Variable Sales and Administration Expenses	$4
Fixed Sales and Administration Expenses	$1,008,800
Direct Material Cost per Unit	$25
Direct Labor Cost per Unit	$10
Variable Manufacturing Overhead Cost per Unit	$3
Fixed Manufacturing Overhead Cost per Month	$1,016,600

Prepare an income statement under the absorption method. If an amount box does not require an entry, leave it blank.

Appliance Apps
Income Statement: Absorption
Sales		$
Cost of Goods Sold:
Beginning Inventory	$
Cost of Goods Manufactured
Cost of Goods Available for Sale	$
Ending Inventory
Total Cost of Goods Sold
Gross Profit		$
Sales and Administrative Expenses:
Variable	$
Fixed
Total Fixed Sales and Administrative Expenses
Net Operating Income		$

Feedback

Absorption costing includes all costs necessary for production. Conversely, variable costing only uses the variable costs that relate directly to the production process. Keep this in mind when calculating net income under each assumption. Depending on the cost method chosen, there will be differences due to the way fixed costs are treated under each method (absorption and variable).

Prepare an income statement under the variable costing method. If an amount box does not require an entry, leave it blank.

Appliance Apps
Income Statement: Variable
		$
Cost of Goods Sold:
	$
	$
Total Cost of Goods Sold
		$
Sales and Administrative Expenses:
Variable
		$
	$
		$

Feedback

Absorption costing includes all costs necessary for production. Conversely, variable costing only uses the variable costs that relate directly to the production process. Keep this in mind when calculating net income under each assumption. Depending on the cost method chosen, there will be differences due to the way fixed costs are treated under each method (absorption and variable).

Prepare a reconciliation between the two statements.

Reconciliation
	$
	$

Feedback

Absorption costing includes all costs necessary for production. Conversely, variable costing only uses the variable costs that relate directly to the production process. Keep this in mind when calculating net income under each assumption. Depending on the cost method chosen, there will be differences due to the way fixed costs are treated under each method (absorption and variable).

Feedback

Answer 1

Income Statement under absorption costing
	Working	Amount $
No. of unit produced	26000
No. of unit Sold	20800
Sales @$144*20800		$        2,995,200
Variable manufacturing cost
Direct material cost@$25*26000	$                         650,000
Direct labour cost@$10*26000	$                         260,000
Variable manufacturing Overhead@$3*26000	$                           78,000
Fixed manufacturing cost@$1016600 p.m.	$                     1,016,600
Cost of Goods manufactured	$                     2,004,600
Add : Opening inventory	$                                    -
Less : Closing inventory(2004600/26000*5200)	$                      (400,920)
Less : Cost of goods sold		$        1,603,680
Sales & Administrative exp
Variable expense@$4*20800	$                           83,200
Fixed expense@$1008800 p.m.	$                     1,008,800
Less : Sales & Administrative exp		$        1,092,000
Net Income		$            511,680
Income Statement under variable costing
	Working	Amount $
Unit produced	26000
Unit Sold	20800
Sales @$144*20800		$        2,995,200
Variable cost of good sold
Add : Opening inventory	$                                    -
Add : Cost of Goods manufactured
Direct material cost@$25*26000	$                         650,000
Direct labour cost@$10*26000	$                         260,000
Variable manufacturing Overhead@$3*26000	$                           78,000
Variable cost of good sold available for sale	$                         988,000
Less : Closing inventory(988000/26000*5200)	$                      (197,600)
		$            790,400
Gross Contribution margin	$                                    -	$        2,204,800
Variable sales expense@$4*20800		$              83,200
Contribution margin		$        2,121,600
Fixed expenses
Fixed manufacturing cost@$1016600 p.m.	$                     1,016,600
Fixed Sales expense@$1008800 p.m.	$                     1,008,800
Less: Fixed expenses		$        2,025,400
Income		$              96,200

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