Instructions Bionic Cotton Inc. manufactures and sells high-quality sporting goo
ID: 2464556 • Letter: I
Question
Instructions Bionic Cotton Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable Cool Cat logo. The company began operations on January 1, 2016, and operated at 100% of capacity (82,000 units) during the first month, creating an ending inventory of 11,000 units. During February, the company produced 74,800 garments during the month but sold 85,800 units at $100 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Number of Units Unit Cost Total Cost Manufacturing costs in February beginning inventory Variable Fixed Total February manufacturing costs Variable Fixed Total Selling and administrative expenses Variable 11,000 $52 $ 572,000 11,000 88,000 $60 $660,000 74,800 $52 $ 3,889,600 10 $62 $4,637,600 74,800 748,000 $1,320,000Explanation / Answer
(A)
Bionic Cotton Inc
Absorption Costing Income Statement
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Sales (85,800 units x $100) $ 8,580,000
Less: Cost of Goods sold :
Inventory, Februay 1 $660,000
Cost of Goods Manufctured 4,637,600
Fixed Selling & Administrative expense 332,000 1,652,000
(B)
Bionic Cotton Inc
Income Statement variable costing
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Sales (85,800 units x $100) $ 8,580,000
Less: Variable cost
Inventory, February 1 $ 572,000
Variable cost of goods manufactured 3,889,600
Less: Fixed Manufcturing Expenses 748,000
Fixed Selling & Administrative Expenses 332,000 1,080,000
(C). Main difference between Net Income under Absorption Costing and Variable Costing is valuation of Openng Stock. Under Absorption costing, Opening stock value includes both Varible and Fixed cost, but Under Varible costing Opening Stock includes only Variable Cost. Value of Opening Stock under Absorption costing is $660,000 while Under Variable costing is $572,000. The difference in stock valuation is $ 88,000. The same difference we got in the Net Income under Absorption Costing ie. $1,630,400 while in Variable Costing is $1,718,400. Hence, the difference in Net Income is also $88,000