Question

Required information Exercise 06-9 Income statement under absorption costing and variable costing LO P1, P2 The following information applies to the questions displayed below.) Cool Sky reports the following costing data on its product for its first year of operations. During this first year, the company produced 44,000 units and sold 36,000 units at a price of $130 per unit. $ $ 54 20 Manufacturing costs Direct materials per unit Direct labor per unit Variable overhead per unit Fixed overhead for the year Selling and administrative costs Variable selling and administrative cost per unit Fixed selling and administrative cost per year $484,000 S 1 1 $105,000 Exercise 06-9 Part 1b 1b. Assume the company uses absorption costing. Prepare its income statement for the year under absorption costing.

Answer 1

Required 1 (B):

COOL SKY
Absorption costing Income Statement
Sales ( 36,000 units * $ 130)		$ 4,680,000
Less: Cost of goods sold
Direct materials ( 36,000 units * $ 54 )	$ 1,944,000
Direct Labor ( 36,000 units * $ 20 )	$ 720,000
Variable overhead (36,000 units * $ 6)	$ 216,000
Fixed overhead ( see note 1 Below )	$ 396,000
.Cost of goods sold		($3,276,000)
Gross Margin		$ 1,404,000
less: Selling and administrative expenses:
Variable Selling and administrative expenses(36,000 units *$11)	$ 396,000
Fixed Selling and administrative expenses(Given)	$ 105,000
Total Selling and administrative expenses		($501,000)
Net income / (loss)		$ 903,000

Note 1 :

Fixed overhead per unit = $ 484,000 / 44,000 units produced

Fixed overhead per unit = $ 11 per unit.

Fixed overhead = 36,0000* $ 11 per unit

Fixed overhead = $ 396,000.

Required 2(A) :

Per unit product cost using	Variable costing
Direct materials per unit	$ 54
Direct Labor per unit	$ 20
Variable overhead per unit	$ 6
Cost per unit	$ 80

Required 2 (B) :

COOL SKY
Variable costing Income Statement
Sales ( 36,000 units * $ 130)		$ 4,680,000
Less: Variable costs :
Variable production costs (36,000 units * $ 80)	$ 2,880,000
Variable Selling and administrative expenses(36,000 units *$11)	$ 396,000
Total Variable Cost		($3,276,000)
Contribution margin		$ 1,404,000
Less: Fixed Expenses
Fixed Overhead cost (Given )	$ 484,000
Fixed Selling and administrative expenses(Given)	$ 105,000
Total Fixed Expenses		($589,000)
Net income / (loss)		$ 815,000