Question

Variable Costing Income

Banana International provided the below data (its first year of operations) for Product A that it sells for $216 per unit. 20 per unit 28 per unit Direct materials Direct labor Overhead costs Variable overhead Fixed overhead per year Selling and administrative expenses Variable Fixed Units produced and sold 6 per unit $ 160,000 per year $ 18 per unit $ 200,000 per year 20,000 units 1. Prepare an income statement for the year using absorption costing 2. Prepare an income statement for the year using variable costing. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare an income statement for the year using variable costing. REY COMPANY Variable Costing Income Statement Direct labor Direct materials Fixed overhead costs Fixed selling and administrative costs Net income (loss)

Answer 1

Solution 1:

Rey Company
Absorption Costing income statement
Sales (20000*$216)		$43,20,000
Less: Cost of Goods Sold:
Direct material	$4,00,000
Direct Labor	$5,60,000
Variable Overhead	$1,20,000
Fixed overhead	$1,60,000
Total Cost of goods sold		$12,40,000
Gross Profit		$30,80,000
Less: Selling and administrative expenses:
Variable	$3,60,000
Fixed	$2,00,000
Total Selling and administrative expenses		$5,60,000
Net Income (Loss)		$25,20,000

Solution b:

Rey Company
Variable Costing income statement
Sales (20000*$216)		$43,20,000
Variable Cost:
Direct material	$4,00,000
Direct Labor	$5,60,000
Variable Overhead	$1,20,000
Variable Selling and Administrative Expenses	$3,60,000
Total variable costs		$14,40,000
Contribution Margin		$28,80,000
Less: Fixed Costs
Fixed Manufacturing Overhead	$1,60,000
Fixed Selling & Administrative Expenses	$2,00,000
		$3,60,000
Net Income (Loss)		$25,20,000