Coswell Company produces plastic that is used for injection-molding applications
ID: 2504032 • Letter: C
Question
Coswell Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2011, the first year of operations, Coswell produced 4,700 tons of plastic and sold 3,290 tons. In 2012, the production and sales results were exactly reversed. In each year, the selling price per ton was $2,300, variable manufacturing costs were 20% of the sales price of units produced, variable selling expenses were 9% of the selling price of units sold, fixed manufacturing costs were $2,679,000, and fixed administrative expenses were $566,000.
Prepare income statements for each year using variable costing.
Income Statement
For the Year Ended December 31, 2011
Variable Costing $ $ $ $
Explanation / Answer
Income statement for 2011:
Inventory on Dec 31 = (4700-3290)*2300*20%
Variable cost of goods sold = variable cost of goods available for sale - inventory on Dec 31
Variable selling expenses = 9% of sales
Contribution margin = sales - variable cost of goods sold - variable selling expenses
Income statement for 2012:
Inventory on Dec 31 = (3290-4700)*2300*20% + inventory on Jan 1 (648,600)
Variable cost of goods sold = variable cost of goods available for sale - inventory on Dec 31
Variable selling expenses = 9% of sales
Contribution margin = sales - variable cost of goods sold - variable selling expenses
Sales 7,567,000 Variable Cost of Goods Sold Inventory, Jan 1 0 Variable Cost of Goods Manufactured 2,162,000 Variable Costs of Goods Available for Sale 2,162,000 Inventory, December 31 648,600 Variable Cost of Goods Sold 1,513,400 Variable Selling Expenses 681,030 Contribution Margin 5,372,570 Fixed Manufacturing Overhead 2,679,000 Fixed Administrative Expenses 566,000 Net Income/ (Loss) 2,127,570