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.

Prepare comparative income statements for each year using variable costing. (Use the format from Illustration 8.5.)

For the Years Ended December 31 2020 2021 Number of units manufactured 4,200 2,814 Number of units sold 2,814 4,200 Sales 5,346,600 7,980,000 TLess T Variable costs Inventory, beginning 299,250 Add . Costs of goods manufactured 1,197,000 897,750 Cost of goods available for sale 1,197,000 1,197,000 HOTELIETU 0 Less Inventory, ending 299,250 TVariable cost of goods sold 897,750 1,197,000 Variable selling and administrative costs 588,126 877,800 Total variable costs 1,485,876 ,074,800 Contribution margin 3,860,724 5,905,200 Tless . Fixed costs 3,351,600 3,351,600 Net income 509,124 2,553,600

Answer 1

Ans.	AFN COMPANY
	Variable Costing Income Statement
	For the Years Ended December 31
	PARTICULARS	Prior Year		Current Year
	Number of units manufactured	4200		2814
	Number of units sold	2814		4200
	Sales	$5,346,600		$7,980,000
	Less: Variable costs:
	Inventory, beginning	$0		$395,010
	Add: Cost of goods manufactured	$1,197,000		$1,197,000
	Cost of goods available for sale	$1,197,000		$1,592,010
	Less: Inventory, Ending	$395,010		$0
	Variable cost of goods sold	$801,990		$1,592,010
	Variable Selling and Administrative costs	$588,126		$877,800
	Total variable costs	$1,390,116		$2,469,810
	Contribution Margin	$3,956,484		$5,510,190
	Less: Fixed costs	$3,351,600		$3,351,600
	Net operating income	$604,884		$2,158,590
	*Calculations for 2020:
	Number of units in ending inventory = Units manufactured - Units sold
	4,200 - 2,814
	1,386 units
	Inventory, ending = Units in ending inventory * Selling price * 15%
	1,386 * $1,900 * 15%
	$395,010
	*Calculations for 2021:
	Ending inventory for 2020 = Beginning inventory for 2021 = $395,010
	Number of units in ending inventory = Beginning inventory + Units manufactured - Units sold
	1,386 + 2,814 - 4,200
	0 units
	So, Inventory, ending = $0