Question

Hayek Bikes prepares the income statement under variable costing for its managerial reports, and it prepares the income statement under absorption costing for external reporting. For its first month of operations, 325 bikes were produced and 215 were sold; this left 110 bikes in ending inventory. The income statement information under variable costing follows. $ 344,000 134,375 Sales (215 x $1,600) Variable product cost (215 x $625) Variable selling and administrative expenses (215 x $55) 11,825 197,800 65,000 90,000 Contribution margin Fixed overhead cost Fixed selling and adeinistrative expense 42,800 Net income 1. Prepare this company's income statement for its first month of operations under absorption costing. (Round your intermediate calculations to the nearest whole dollar.) HAYEK BIKES Absorption Costing Income Statement $ 344,000 Sales Less: Cost of goods sold 268.125 Variable product costs Fixed selling and administrative costs 268,125 Net income (loss) Net income under absorption costing is higher than net income under variable costing by Fixed costs added to inventory

Answer 1

Absorption costing income statement
Sales		344000
Less: Cost of goods sold
Variable production costs	134375
Fixed overhead costs	43000		=65000/325*215
Cost of goods sold		177375
Gross margin		166625
Selling general and administrative expenses
Variable selling and administrative expenses	11825
Fixed selling and administrative costs	90000
Total selling general and administrative expenses		101825
Net income (loss)		64800
Net income under absorption costing is higher than net income under variable costing by:		22000
Number of units added to(subtracted from) inventory		110
Fixed overhead cost per unit		200	=65000/325
Fixed costs added to inventory		22000