ABC Company started the month operating at 100% of capacity. The following data
ID: 2339292 • Letter: A
Question
ABC Company started the month operating at 100% of capacity. The following data summarize the results for the month: (10 points) 2) $7,000,000 Sales (28,000 units) Production costs (28,000 units) Direct Materials Direct Labor Variable factory overhead Fixed factory overhead $2,520,000 1,680,000 560,000 336,000 5,096,000 Selling and administrative expenses: Variable selling and admin. Expenses Fixed selling and admin. Expenses $1,100,000 400,000 1,500,000 Instructions: a) Prepare an income statement according to the absorption costing concept. b) Prepare an income statement according to the variable costing concept.Explanation / Answer
ABC COMPANY
Absorption Costing Income Statement
Sales
$ 7,000,000.00
Cost of goods sold:
Direct material
$ 2,520,000.00
Direct labor
$ 1,680,000.00
Factory Overheads
$ 896,000.00
Total cost of goods sold
$ 5,096,000.00
Gross Profits
$ 1,904,000.00
Less: Selling & Administrative expense
$ 1,500,000.00
Income from operations
$ 404,000.00
ABC COMPANY
Variable Costing Income Statement
Sales
$ 7,000,000.00
Less: Variable Cost
Direct material
$ 2,520,000.00
Direct labor
$ 1,680,000.00
Variable Factory Overheads
$ 560,000.00
Variable selling and administrative expenses
$ 1,100,000.00
Total variable cost
$ 5,860,000.00
Contribution Margin
$ 1,140,000.00
Fixed costs:
Fixed manufacturing Overheads
$ 336,000.00
Fixed selling & administrative expenses
$ 400,000.00
Total fixed cost
$ 736,000.00
Income from operations
$ 404,000.00
ABC COMPANY
Absorption Costing Income Statement
Sales
$ 7,000,000.00
Cost of goods sold:
Direct material
$ 2,520,000.00
Direct labor
$ 1,680,000.00
Factory Overheads
$ 896,000.00
Total cost of goods sold
$ 5,096,000.00
Gross Profits
$ 1,904,000.00
Less: Selling & Administrative expense
$ 1,500,000.00
Income from operations
$ 404,000.00