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During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 80,000 mini refrigerators, of which 72,000 were sold. Operating data for the month are summarized as follows:
1 Sales $10,800,000.00
2 Manufacturing costs:
3 Direct materials $6,400,000.00
4 Direct labor 1,600,000.00
5 Variable manufacturing cost 1,280,000.00
6 Fixed manufacturing cost 320,000.00 9,600,000.00
7 Selling and administrative expenses:
8 Variable $1,080,000.00
9 Fixed 180,000.00 1,260,000.00
Required:
1. Prepare an income statement based on the absorption costing concept.*
2. Prepare an income statement based on the variable costing concept.*
3. Explain the reason for the difference in the amount of income from operations reported in (1) and (2).

Respuesta :

Tundexi

Answer:

1.                     Absorption Costing Income Statement

                         For the month ended May 31, 2016

Sales                                                                     $10,800,000

Cost of goods sold

Beginning inventory                   -

Cost of goods manufactured    $9,600,000

Ending Inventory                         $960,000

Cost of goods sold                                                $8,640,000

Gross margin                                                          $2,160,000

Selling and administrative expenses

$1,080,000 + $180,000                                         $1,260,000

Income from operation                                           $900,000

2.             Variable Costing Income Statement

               For the month ended May 31, 2016

Sales                                                                            $10,800,000

Variable cost of goods sold

Beginning Inventory                     -

Variable cost of goods manufactured $9,280,000

Ending Inventory                                    $928,000

Variable cost of goods sold                                        $8,352,000

Manufacturing margin                                                  $2,448,000

Variable selling and administrative                             $1,080,000

expenses

Contribution margin                                                     $1,368,000

Fixed Cost:

Fixed manufacturing cost                        $320,000

Fixed selling and administrative              $180,000

expenses

Total fixed cost                                                                $500,000

Income from operation                                                  $868,000

3. The reason for difference of amount for income from operation is $32,000 ($900,000 - $868,000). It is due to fixed manufacturing cost which is included for ending inventory under absorption costing (320,000 / 80,000 * 8,000). Hence, income under absorption costing is higher by $32,000 as compared to income under variable costing.

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