Question

Exercise 19-4 Variable costing income statement LO P2

Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,050 kayaks and sold 800. at a price of $1,050 each. At this first year-end, the company reported the following income statement information using absorption costing.
  

Sales (800 × $1,050)	$	840,000
Cost of goods sold (800 × $475)		380,000
Gross margin		460,000
Selling and administrative expenses		250,000
Net income	$	210,000

Additional Information

1. Product cost per kayak totals $475, which consists of $375 in variable production cost and $100 in fixed production cost—the latter amount is based on $105,000 of fixed production costs allocated to the 1,050 kayaks produced.
2. The $250,000 in selling and administrative expense consists of $105,000 that is variable and $145,000 that is fixed.

Required

1. Prepare an income statement for the current year under variable costing.

Answer 1

Income statement

Sales	840,000
Variable expenses :
Cost of goods sold (800 x 375)	-300,000
Selling and administrative expenses	-105,000
Contribution margin	435,000
Fixed expenses :
Cost of goods sold	-105,000
Selling and administrative expenses	-145,000
Net income	$185,000

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