Question

XYZ Corporation, a single product line company, provided the following information about last month's operations:

Selling price	$	125
Units in beginning inventory		395
Units produced		6,210
Units sold		6,420
Units in ending inventory		185
Variable costs per unit:
Direct materials	$	47
Direct labor	$	24
Variable manufacturing overhead	$	3
Variable selling and administrative expense	$	18
Fixed costs:
Fixed manufacturing overhead	$	105,570
Fixed selling and administrative expense	$	89,880

The number of units sold changes every month, however, the number of units produced is the same every month. The company's variable costs per unit and total fixed costs have been the same from month to month.

Required:

a. Prepare a contribution format income statement for the month using variable costing.

b. Prepare an income statement for the month using absorption costing.

Answer 1

XYZ Corporation Variable Costing Income Statement $ 802,500 $ $ $ $ (301,740) (154,080) (19,260) (115,560) Sales ( 6420* $ 125) Less : variable costs Direct Material ( 6420* $ 47) Direct Labour ( 6420 * $ 24) Variable Manufacturing Overhead ( 6420 * $ 3) Variable Selling expenses ( 6420* $ 18) Total Variable Costs Contribution Margin Less : Fixed Costs Fixed Manufacturing Overhead Fixed selling and administrative expenses Net Income (loss ) $ $ (590,640) 211,860 $ $ (105,570) (89,880) $ $ (195,450) 16,410

XYZ Corporation Absorption Costing Income Statement $ 802,500 $ $ $ Sales (6420* $ 125) Less: Cost of Goods Sold Beginning Inventory ( 395 * $ 91 ) Total Manufacturing cost ( 6210* $ 91 ) Less : Ending Inventory (185* $ 91 ) Gross Margin Less: Selling and Administrative expenses Variable selling and administrative expenses (6420*18) Fixed selling and administrative expenses Net Income (loss) 35,945 565,110 (16,835) $ $ 584,220 218,280 $ $ 115,560 89,880 $ $ 205,440 12,840 Working Notes Manufacturing Cost per Unit Direct Material Direct Labour Variable Manufacturing overhead Fixed manufacturing overhead ($105570/6210 ) Manufacturing Cost per Unit $ $ 47.00 24.00 3.00 17.00 91.00 $