Income Statements under Absorption and Variable Costing Shawnee Motors Inc. asse
ID: 2433031 • Letter: I
Question
Income Statements under Absorption and Variable Costing
Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August:
If required, round interim per-unit calculations to the nearest cent.
a. Prepare an income statement according to the absorption costing concept.
Feedback
b. Prepare an income statement according to the variable costing concept.
Sales (19,500 units) $2,535,000 Production costs (25,000 units): Direct materials $1,202,500 Direct labor 577,500 Variable factory overhead 287,500 Fixed factory overhead 192,500 2,260,000 Selling and administrative expenses: Variable selling and administrative expenses $350,300 Fixed selling and administrative expenses 135,600 485,900Explanation / Answer
a. Absorbtion Costing Income Statement Sales (19,500 units) $ 25,35,000 Cost of Goods Sold $ 17,62,800 Gross Margin $ 7,72,200 Selling and Administrative expenses ($350300 + 135600) $ 4,85,900 Net Operating Income $ 2,86,300 Under Absorption Costing Unit product cost: Direct Material ($12,02,500 / 25,000units) $ 48.10 Direct Labour ($5,77,500 / 25,000 units) $ 23.10 Varialble Manufaturing overhead ($2,87,500 / 25,000 units) $ 11.50 Total Variable Cost $ 82.70 Fixed factoryoverhead ($1,92,500 / 25,000 units) $ 7.70 Unit product cost $ 90.40 Cost of Goods Sold Beginning Inventory 0 Cost of Goods manufactured (25,000 X $90.40) $ 22,60,000 Goods available for sale $ 22,60,000 Ending Inventory (5,500 X $90.40) $ 4,97,200 Cost of Goods Sold $ 17,62,800 b. Variable Costing Income Statement Sales (19,500 units) $ 25,35,000 Variable Cost of goods sold: $ 16,12,650 Manufacturing margin $ 9,22,350 Variable selling expenses and administrative expense $ 3,50,300 Contribution margin $ 5,72,050 Fixed Expenses: Fixed factory overhead $ 1,92,500 Fixed Selling and Administrative expenses $ 1,35,600 $ 3,28,100 Net operating Income $ 2,43,950 Under Variable Costing Unit product cost: Direct Material ($12,02,500 / 25,000units) $ 48.10 Direct Labour ($5,77,500 / 25,000 units) $ 23.10 Varialble Manufaturing overhead ($2,87,500 / 25,000 units) $ 11.50 Unit product cost $ 82.70 Variable Cost of goods sold: Beginning Inventory 0 Add: Variable Manufacturing Cost (25,000 X $82.70) $ 20,67,500 Goods available for sale $ 20,67,500 Less: Ending Inventory (5,500 X $82.70) $ 4,54,850 Variable Cost of goods sold $ 16,12,650