Question

	July	August	September
Production in units	85,000	80,000	60,000
Sales in units	70,000	75,000	80,000
Inventory at July 1	5000 units at $16 each
Selling price per unit	$                  25
Variable manufacturing costs per unit	$                     9
Variable selling and administrative costs per unit sold	$                     6
Fixed manufacturing overhead per month	$        560,000
Fixed selling and adminitrative expenses per month	$        200,000
Other information:
Fixed overhead is allocated to units of production based on a budgeted production volume of 80,000 units per month
Any over or underallocated overhead is written off to cost of goods sold
There are no beginning or ending work in process inventories 1. Prepare Income statements under absorption and variable costing. Don't forget to add beginning and ending inventory!

Answer 1

of Net Income under Absorbtion costing system: Determination Particulars Amount $ Amount $ Sales (70000*25) 17,50,000 Less: Cost of goods sold Beginning inventory Add: Cost of goods manufactured (85000*9)+560000) 13,25,000 Goods available for sales 13,25,000 Less: Ending inventory (15000"9)+((560000/80000)*15000) (2,40,000) Cost of goods sold 10,85,000 Gross margin 6,65,000 Less: Selling and Admin expenses Variable selling and administative expenses (70000 6) 4,20,000 Fixed Selling and Administrative expenses 2,00,000 Total Fixed Expenses 6,20,000 Operating Income/(Loss) 45,000 Determination of Net Income under Variable costing system: Amount $ Particulars Amount $ Sales 17,50,000 Less :- Variable cost of goods sold Beginning inventory Variable cost of goods sold (85000*9) 7,65,000 Less: Ending inventory (15000*9) (1,35,000) Variable cost of goods sold 6,30,000 Manufacturing Margin 11,20,000 Less: Variable selling and administrative expenses (70000 6) 4,20,000 Contribution Margin 7,00,000 Less:- Fixed expenses Fixed manufacturing expenses 5,60,000 Fixed selling and administrative expenses 2,00,000 Total Fixed expenses 7,60,000 Net Operating Income (60,000)