Question

Addison, Inc. makes a single product, an indoor fireplace, and has provided data from last year of operations. The Controller has asked you to compare income statements if the company used the variable costing approach vs. the absorption costing report.
А B C D E 1 Addison, Inc. makes a single product, an indoor fireplace. Data for last year is as follows: 2 $420 5 6 7 $135 $43 $37 $210,000 8 9 3 Selling price per fireplace 4 Manufacturing costs: Variable per unit produced: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead per year 10 Selling and administrative expenses: 11 Variable per unit sold 12 Fixed per year 13 14 Units in beginning inventory 15 Units produced during the year 16 Units sold during the year $45 $190,000 0 5,000 4,500 17 18 Use the data to answer the following. 19 20 1. Assume the company uses variable costing: 21 22 Compute the unit product cost for one fireplace 23 24 Prepare a contribution margin income statement for the year

Answer 1

(1)	Variable Costing-Income Statement
		Amount in $
	Sales	1,890,000	( 420 x 4,500 )
	Variable expenses:
	Variable cost of goods sold	967,500	(135 + 43 + 37 ) x 4,500
	Variable selling & administrative expenses	202,500	( 4,500 x 45 )
	Contribution Margin	720,000
	Fixed expenses:
	Fixed Manufacturing Overheads	210,000
	Fixed Selling and administrative expenses	190,000
	Net Operating Income	320,000
(2)	Absorption costing-Income Statement
		Amount in $
	Sales	1,890,000	( 420 x 4,500 )
	Cost of Goods Sold:	1,156,500	((135 + 43 + 37 ) + ( 210,000 /5,000 ) ) x 4,500
	Gross Margin	733,500
	Selling and administrative expenses	392,500	(4,500 x 45 ) + 190,000
	Net Operating Income	341,000
	Reconciliation of Net operating Income
		Amount in $
	Net operating Income Under Variable Costing	320,000
	Add: Defferment of fixed manufacturing overhead on unsold units ( 210,000 /5,000 ) x 500	21,000
	Net operating Income Under Absorption Costing	341,000