Question

AFN Company produces plastic that is used for injection-moulding applications such as gears for small motors. In 2020, the first year of operations, AFN Company produced 4,200 tonnes of plastic and sold 2,814 tonnes. In 2021, the production and sales results were exactly reversed. In each year, the selling price per tonne was $1,900; variable manufacturing costs were 15% of the sales price for the units produced; variable selling expenses were 11% of the selling price of the units sold; fixed manufacturing costs were $2,814,000; and fixed administrative expenses were $537,600.

(a) Prepare comparative income statements for each year using variable costing. (Use the format from Illustration 8.5.) AFN COMPANY Income Statement-Variable Costing 2020 2021 Number of units manufactured Number of units sold

Answer 1

Variable Costing :It is a costing method in which the variable cost is considered as product cost and fixed Expense are considered as period cost. Fixed cost are not considered in the product costing or for inventory valuation. AFN Company For the year ended December 31 2021 2020 Number of units manufactured Number of Units sold 4200 2814 2814 4200 $5,346,600 [2814 x $1900] $7,980,000 Sales [4200 x $1900] Less: Variable Cost Inventory Beginning Add: Cost of Goods Manufactured Cost fo goods available for sale Less: Inventory Ending Variable cost of good sold Variable Selling and administrative cost Total Variable Cost Contribution Margin $0 $395,010 $1,197,000 [($1900 x 15 %) x 2814] [($1900 x 15%) x 4200] $801,990 $1,197,000 $0 $1,197,000 $1,197,000 [($1900 x 15%) x (4200-2814)] $395,010 $801,990 $588,126 [($1900 x 11%) x 4200] $1,390,116 [($1900 x 11%) x 2814] $877,800 $2,074,800 $3,956,484 $3,351,600 [$2814000+$537600] $3,351,600 $5,905,200 [$2814000+ $537600] Less: Fixed Cost Net Income $604,884 $2,553,600