Question

Exercise 06-5 Absorption costing and variable costing income statements LO P2 Rey Company's single product sells at a price of $232 per unit. Data for its single product for its first year of operations follow. $ $ 36 per unit 44 per unit Direct materials Direct labor Overhead costs Variable overhead Fixed overhead per year Selling and administrative expenses Variable Fixed Units produced and sold $ 8 per unit $255,000 per year 34 per unit $232,000 per year 25,500 units 1. Prepare an income statement for the year using absorption costing 2. Prepare an income statement for the year using variable costing.

Answer 1

Working note:

Calculation of unit Product Cost Particulars Calculation Absorption Costing Variable Costing Direct Material per unit Direct Labour per unit Variable manufacturing overhead per unit Fixed manufacturing overhead per unit Manf. Costs/Units produced = $255,000/25,500 Unit Product Cost 36.00S 44.00S 8.00 S 10.00 98.00 S 36.00 44.00 8.00 S $ S 88.00 Cost of goods Sold Calculation Calculation Particulars Absorption Costing Variable Costing A.Opening Stock Previous Closing B.Cost of goods manufactured No. of production x Unit product cost 25,500 x 598 25,500 x 588 S 24,99,000.00 S 22,44,000.00 C.Closing Inventory No. of units x Unit product cost S Cost of Goods Sold A+B-C $ 24,99,000.00 $ 22,44,000.00

Answers:

59,16,000.00 S Rey Company Absorption Costing Income Statement Sales 25,500 x $232 Cost of goods sold: Cost of goods manufactured 24,99,000.00 Ending inventory Total Cost of goods sold Gross margin Less: Non manufacturing costs Selling and administrative 25,500 x $34 expenses Fixed General and administartive expense Net Operating income 24,99,000.00 34,17,000.00 $ 8,67,000.00 2,32,000.00 23,18,000.00

59,16,000.00 Rey Company Variable Costing Income Statement Sales 25,500 x $232 Variable cost of goods sold: Variable cost of goods $ 22,44,000.00 manufactured Ending inventory Total variable cost of goods sold S Manufacturing margin $ Variable selling and administrative 25.500 x $34 expenses Contribution margin Fixed costs: Fixed manufacturing costs $ 2,55,000.00 Fixed selling and administratives 2,32,000.00 expenses Total fixed costs Net Operating income 22,44,000.00 36,72,000.00 8,67,000.00 $ 28,05,000.00 4,87,000.00 23,18,000.00