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 the Month Ended January 31
		$
Cost of goods sold:
	$
		$
Operating income		$

b. Prepare an income statement using variable costing.

Townsend Co.
Variable Costing Income Statement
For the Month Ended January 31
		$
Variable cost of goods sold:
	$
		$
		$
Fixed costs:
	$
Operating income		$

Answer 1

Solution a:

Townsend Co.
Income Statement - Absorption costing
For the Year ended 31 january
Sales (42000*$18)		$7,56,000
Less: Cost of goods sold:
Variable manufacturing cost ($575000/50000*42000)	$4,83,000
Fixed Manufacturing Overhead ($80000/50000*42000)	$67,200
Cost of goods sold		$5,50,200
Gross profit		$2,05,800
Less: Selling and admin. Expense:
Variable Selling and Administrative Expenses	$35,000
Fixed Selling & Administrative Expenses	$10,500
Total selling and admin costs		$45,500
Net Income		$1,60,300

Solution b:

Townsend Co.
Income Statement - variable costing
For the Year ended 31 janaury
Sales (42000*$18)		$7,56,000
Less: Variable Cost:
Variable manufacturing cost ($575000/50000*42000)	$4,83,000
Variable Selling and Administrative Expenses	$35,000
Total Variable Costs		$5,18,000
Contribution Margin		$2,38,000
Less: Fixed Costs:
Fixed Manufacturing Overhead	$80,000
Fixed Selling & Administrative Expenses	$10,500
Total Fixed Costs		$90,500
Net Income		$1,47,500