Income Statements under Absorption Costing and Variable Costing Joplin Industrie
ID: 2551966 • Letter: I
Question
Income Statements under Absorption Costing and Variable Costing Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (46,200 units) during the first month, creating an ending inventory of 4,200 units, During June, the company produced 42,000 garments during the month but sold 46,200 units at $85 per unit. The June manufacturing costs and selling and administrative expenses were as follows: Number of Unit Cost Total Cost Manufacturing costs in June 1 beginning inventory: 4,200 $34.00 $142,800 54,600 47.00 $197,400 Fooed 4,200 13.00 Total Manufacturing costs in June: 42,000 $34.00 $1,428,000 42,000 14.30 600,600 $48.30 $2,028,600 Fixed Total Selling and administrative expenses in June: 46,200 16.90 $780,780 7.00 323,400 23.90 $1,104,180 Fixed 6,200 TotalExplanation / Answer
Requirement a) Joplin Industries Absorption costing Income statement Total amount Sales volume 46200 Sales 3927000 Cost of goods sold Variable Manufacturing costs 1570800 =46200*34 Fixed Manufacturing costs 655200 =42000*14.30+4200*13 Total cost of goods sold 2226000 Gross Margin 1701000 Variable Selling & administrative expenses 780780 Fixed Selling & administrative expenses 323400 Net Income 596820 Requirement b) Joplin Industries Variable costing Income statements Production Volume 42000 Sales Volume 46200 Selling Price 85 Sales 3927000 Less : Variable costs Manufacturing costs 1570800 Selling & administrative expenses 780780 Total Variable costs 2351580 Contirbution Margin 1575420 Less : Fixed costs Manufacturing costs 600600 Selling & administrative expenses 323400 Total fixed cost 924000 Net Income 651420 Requirement c) Under the absorption costing method, The fixed manufacturing cost included in the cost of goods sold is matched with the revenue. Under variable costing method, all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when Inventory decreases, the absorption costing income statement will have a lower income from operations.