Question

Oak Mart, a producer of solid oak tables, reports the following data from its second year of business.

Sales price per unit	$	310	per unit
Units produced this year		100,000	units
Units sold this year		103,250	units
Units in beginning-year inventory		3,250	units
Beginning inventory costs
Variable (3,250 units × $135)	$	438,750
Fixed (3,250 units × $75)		243,750
Total	$	682,500
Manufacturing costs this year
Direct materials	$	46	per unit
Direct labor	$	62	per unit
Overhead costs this year
Variable overhead	$	3,000,000
Fixed overhead	$	7,000,000
Selling and administrative costs this year
Variable	$	1,350,000
Fixed		4,400,000

1. Prepare the current-year income statement for the company using variable costing.

2. Prepare the current-year income statement for the company using absorption costing.

Answer 1

1.

Income Statement (Variable Costing)
Sales Revenue		$    31,000,000
Variable Costs
Beginning Inventory	$         438,750
Add Cost of Goods Manufactured	$    13,800,000
Variable cost of goods available for sale	$    14,238,750
Less ending inventory	$                    -
Variable Cost of Goods Sold		$    14,238,750
Variable Selling and administrative costs		$       1,350,000
Contribution Margin		$    15,411,250
Fixed Costs
Manufacturing Costs		$       7,000,000
Operating Costs		$       4,400,000
Net Operating Income		$      4,011,250

2.

Income Statement (Absorption Costing)
Sales Revenue		$    31,000,000
Cost of Goods sold
Beginning Inventory	$         682,500
Add Cost of Goods Manufactured	$    20,800,000
Cost of goods available for sale	$    21,482,500
Less ending inventory	$                    -
Cost of Goods Sold		$    21,482,500
Gross Profit		$       9,517,500
Selling and administrative costs		$       5,750,000
Net Operating Income		$      3,767,500