Question

On July 31, 2016, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept:

Rhys Company

Income Statement - Absorption Costing

For the Month Ended July 31, 2016

1	Sales (97,000 units)		$4,510,500.00
2	Cost of goods sold:
3	Cost of goods manufactured	$2,975,000.00
4	Less ending inventory (22,000 units)	550,000.00
5	Cost of goods sold		2,425,000.00
6	Gross profit		$2,085,500.00
7	Selling and administrative expenses		283,000.00
8	Income from operations		$1,802,500.00

	Required:
A.	Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $130,900 and the variable selling and administrative expenses were $116,400. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar.
B.	Reconcile the absorption costing income from operations of $1,802,500 with the variable costing income from operations determined in (A).

Labels and Amount Descriptions:

Contribution marginCost of goods manufacturedEnding inventoryFixed costsFixed manufacturing costsFixed selling and administrative expensesGross profitIncome from operationsManufacturing marginSalesVariable cost of goods manufacturedVariable cost of goods soldVariable selling and administrative expenses

Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $130,900 and the variable selling and administrative expenses were $116,400. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar.

Rhys Company

Income Statement - Variable Costing

For the Month Ended July 31, 2016

1
2
3
4
5
6
7
8
9
10
11
12

B. Reconcile the absorption costing income from operations of $1,802,500 with the variable costing income from operations previously determined.

Rhys Company

Income from Operations - Absorption vs. Variable Costing

For the Month Ended July 31, 2016

1	Absorption costing income from operations
2	Variable costing income from operations
3	Difference

Answer 1

Income Statement As per Variable Costing
Sales		$4,510,500.00
Less: Variable Cost of Goods Sold
AddL Cost of Goods Manufactured (2975000-130900)	$2,844,100.00
Total Cost of Goods Available for Sale	$2,844,100.00
Less: Ending FG (2844100/(97000+22000))*22000	-$525,800.00
Cost of goods SOld		$2,318,300.00
Manufactureing Margin		$2,192,200.00
Less: Other Variable expense
Variable Selling & Admin Expense		-$116,400.00
Contribution Margin		$2,075,800.00
Less: Fixed Expense
Fixed Manufacturing Overhead	$130,900.00
Fixed Selling & Admin Expense (283000-116400)	$166,600.00
Total operating Expense		$297,500.00
Net Operatin Income		$1,778,300.00

Reconciliation
Income as per Absorption costing	$1,802,500.00
Diffeence ( 130900/119000)*22000	-$24,200.00
Income as pe Variablce Costing	$1,778,300.00