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 (39,600 units) during the first month, creating an ending inventory of 3,600 units. During February, the company produced 36,000 units during the month but sold 39,600 units at $125 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	3,600		$50.00		$180,000
Fixed	3,600		19.00		68,400
Total			$69.00		$248,400
Manufacturing costs in February:
Variable	36,000		$50.00		$1,800,000
Fixed	36,000		20.90		752,400
Total			$70.90		$2,552,400
Selling and administrative expenses in February:
Variable	39,600		$24.70		$978,120
Fixed	39,600		7.00		277,200
Total			$31.70		$1,255,320

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
Sales		$fill in the blank ac5c48fbbfe0044_2
Cost of goods sold:
Beginning inventory	$fill in the blank ac5c48fbbfe0044_4
Cost of goods manufactured	fill in the blank ac5c48fbbfe0044_6
Total cost of goods sold		fill in the blank ac5c48fbbfe0044_8
Gross profit		$fill in the blank ac5c48fbbfe0044_10
Selling and administrative expenses		fill in the blank ac5c48fbbfe0044_12
Operating income		$fill in the blank ac5c48fbbfe0044_14

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
Sales		$fill in the blank 4ec23af7e03dfbc_2
Variable cost of goods sold		fill in the blank 4ec23af7e03dfbc_4
Manufacturing margin		$fill in the blank 4ec23af7e03dfbc_6
Variable selling and administrative expenses		fill in the blank 4ec23af7e03dfbc_8
Contribution margin		$fill in the blank 4ec23af7e03dfbc_10
Fixed costs:
Fixed manufacturing costs	$fill in the blank 4ec23af7e03dfbc_12
Fixed selling and administrative expenses	fill in the blank 4ec23af7e03dfbc_14
Total fixed costs		fill in the blank 4ec23af7e03dfbc_16
Operating income		$fill in the blank 4ec23af7e03dfbc_18

Answer 1