Capstone Question - Chapter 8 The vice president (VP) of sales at Wildlife Corpo
ID: 2593552 • Letter: C
Question
Capstone Question - Chapter 8 The vice president (VP) of sales at Wildlife Corporation has received the income statement for September 2015. This statement, which was prepared on the basis of variable costing, is reproduced below. The firm has just adopted a variable costing system for internal reporting Wildlife Corporati on Income Statement For the month ending September 2015 Sales revenues Variable cost of goods sold Contribution margin Fixed costs $2,400,000 1,200,000 $1,200,000 Manufacturing Selling and administrative S600,000 400,000 1,000,000 S200.000 Operating income The controller attached the following notes to the statements: Unit sales price for September averaged $24 Unit manufacturing costs for the month were: S12 Variable costs Fixed costs Total costs S16 The unit rate for fixed manufacturing costs is based on monthly production of 150,000 units Production for September was 50,000 units above sales. Inventory on September 30 was 50,000 unitsExplanation / Answer
a) September Income Statement using Absorption costing (Amount in $)
1b) Reconciliation of Difference in operating Income (Amount in $)
In the variable costing, all fixed costs are considered as period costs and not included in the valuation of inventory whereas under absorption costing fixed cost is allocated to inventories along with variable costs on per unit basis.
2) The Income statement of the company should be prepared as per variable costing due to following reasons:-
Sales Revenue 2,400,000 Less: Cost of goods sold Cost of goods manufactured (150,000*$16) 2,400,000 Less: Closing Inventory (50,000*$16) (800,000) (1,600,000) Gross Profit 800,000 Less: Fixed Selling and Administrative costs (400,000) Operating Income 400,000