Question

Allen Manufacturing manufactures a single product. Cost, sales, and production information for the company and its single product is as follows: i (Click the icon to view the data.) Read the requirements Requirement 1. Prepare an income statement for the upcoming year using variable costing. Allen Manufacturing Contribution Margin Income Statement (Variable Costing) For the Year Ended December 31 Sales revenue Less: Variable expenses Variable cost of goods sold Variable operating expenses Contribution margin Less: Fixed expenses Fixed manufacturing overhead Fixed operating expenses Operating income

Answer 1

a)
Allen Manufacturing
Contribution Margin Income Statement (Variable Costing)
For the Year Ended December 31
Sales revenue	$1,008,000
Less: Variable expenses
Variable cost of goods sold	$588,000
Variable operating expenses	$63,000
Contribution margin	$357,000
Less:Fixed expenses
Fixed manufacturing overhead	$184,000
Fixed operating expenses	$46,000
Operating income	$127,000
b)
Allen Manufacturing
Income Statement (Absorption Costing)
For the Year Ended December 31
Sales revenue	$1,008,000
Less: Cost of Good Sold ($588000+(184000/23000 x 21000 units)	$756,000
Gross Profit	$252,000
Less: Operating expenses (63000 + 46000)	$109,000
Operating income	$143,000
c)
Fixed Manufacturing Overhead causes the difference in income between the two methods. Under  Variable Costing fixed MOH is expensed immediately as a period cost (operating,expense) and Under Absorbtion costing  fixed MOH becomes part of the inventoriable cost of the product, whichisn't expensed (as Cost of Goods Sold) until the inventory is sold, leaving a higher operating income due to less being expensed.
Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Net operating income under variable costing	$127,000
Add:Fixed manufacturing overhead costs deferred in inventory under absorption costing  $184,000 - (184000/23000 x 21000)	$16,000.00
Net operating income under absorption costing	$143,000.00

28 184000 46000 23000 21000 2 Sales price per unit 3 Variable manufacturing costs per unit manufactures (DM, DL, and variable MOH) 4 Variable operating expenses per unit sold 5 Fixed manufacturing overhead (MOH) in total for the year 6 Fixed operating expenses in total for the year 7 Units manufactured during the year 8 Units sold during the year 9 a) 10 Allen Manufacturing 11 Contribution Margin Income Statement (Variable Costing) 12 For the Year Ended December 31 13 Sales revenue 14 Less: Variable expenses 15 Variable cost of goods sold 16 Variable operating expenses 17 Contribution margin 18 Less:Fixed expenses 19 Fixed manufacturing overhead 20 Fixed operating expenses 21 Operating income =B8 B2 =B3B8 =B4B8 =B13-B15-B16 =B5 =B6 =B17-B19-B20 23 b) 24 Allen Manufacturing 25 Income Statement (Absorption Costing) 26 For the Year Ended December 31 27 Sales revenue 28 Less: Cost of Good Sold ($588000+(184000/23000 x 21000 units) 29 Gross Profit BO Less: Operating expenses (63000 + 46000) 31 Operating income =B13 =B15+(B19/B7B8) =B27-B28 =B16+B20 =B29-B30