The following absorption costing income statement and additional data are availa
ID: 2415717 • Letter: T
Question
The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, XXXX. During the accounting period, 17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories.
Bernon Co.
Absorption Costing Income Statement
for the Month Ended May 31, XXXX
Sales (17,000 @ $60)
$1,020,000
Cost of goods sold
612,000
Gross profit
$ 408,000
Selling and administrative expenses
66,000
Income from operations
$ 342,000
Additional Information:
Cost
Total Cost
Number of Units
Unit Cost
Manufacturing costs:
Variable
$442,000
17,000
$26
Fixed
170,000
17,000
10
Total
$612,000
$36
Selling and administrative expenses:
Variable ($2 per unit sold)
$34,000
Fixed
32,000
Total
$66,000
Required: Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.
Bernon Co.
Absorption Costing Income Statement
for the Month Ended May 31, XXXX
Sales (17,000 @ $60)
$1,020,000
Cost of goods sold
612,000
Gross profit
$ 408,000
Selling and administrative expenses
66,000
Income from operations
$ 342,000
Explanation / Answer
Variable costing income statment
The differnece lies betweent the treatment of fixed cost and variable cost under absorption costing fixed manufacturing are part of unit cost whereas under variable costing only variable cost are part of unit costs.
Sales $1,020,000 Less:Variable cost of goods sold 17,000*26 442,000 Variable selling expense (17,000*2) 34,000 Contribution income 544,000 Less:Fixed expense Fixed manufacturing cost (17,000*10) 170,000 Fixed selling expense 32,000 Net income 342,000