Question

5. (20 points) Aspen Manufacturing Company sells its products for $35 each. The current production level is 50,000 units, although only 40,000 units are anticipated to be sold. Unit manufacturing costs are: Direct materials $7.00 Direct manufacturing labor $8.00 Variable manufacturing costs $5.00 Total fixed manufacturing costs $180,000 Marketing expenses $3.00 per unit, plus $100,000 per year Complete the income statements formatted below: a. Absorption-costing income statement: Sales Cost of goods sold Gross margin Marketing: Variable Fixed Operating income b. Variable-costing income statement: Sales Variable costs: Cost of goods sold_ Marketing _*__ *_ Contribution margin Fixed costs: Manufacturing Marketing Operating income

Answer 1

	Working Notes : 1
	Unit Produced =	$                       50,000	Units
	Unit Sold =	$                       40,000	Units
	Closing Stock	$                       10,000	Units
	Selling Price Per unit	$                          35.00	Per Units
	Sales Value	$                 14,00,000
	Working Notes : 2
	CALCUALTION OF cost of production units by using absorption and variable Costing
	Particulars	Absorption Costing Amount	Variable Costing Amount
	Direct Material Per unit	$                            7.00	$                            7.00
	Direct Labour Per Unit	$                            8.00	$                            8.00
	Vairable Manufacturing Overhead	$                            5.00	$                            5.00
	Fixed Manufacturing Overhead ($ 180,000 / 50,000 Units)	$                            3.60	$                                 -
	Cost of Production per unit	$                          23.60	$                          20.00
	SOLUTION 1)
	ABOSRPTION COSTING INCOME STATEMENTS	Absorption Costing
	Particulars	Amount
	Sales	$                 14,00,000
	Cost of Goods Sold
	Beginning inventory	$                                 -
	Cost of Goods Manufactured (50,000 Units X $ 23.60 Per unit)	$                 11,80,000
	Less: Ending Inventory (10,000 units $ 23.60 Per Unit)	$                    2,36,000
	Cost of Goods Sold	$                    9,44,000
	Gross Profit	$                    4,56,000
	Marketing Expenses - Fixed	$                    1,00,000
	Marketing Expenses - Variable (40,000 Units X $ 3.00)	$                    1,20,000
	Operating Income	$                    2,36,000
	SOLUTION 2)
	VARIABLE COSTING INCOME STATEMENTS	Variable Costing
	Particulars	Amount
	Sales	$                 14,00,000
	Cost of Goods Sold
	Beginning inventory	$                                 -
	Cost of Goods Manufactured (50,000 Units X $ 20.00 Per unit)	$                 10,00,000
	Less: Ending Inventory (10,000 units $ 20.00 Per Unit)	$                    2,00,000
	Cost of Goods Sold	$                    8,00,000
	Variable Marketing Expenses	$                    1,20,000
	Gross Profit	$                    4,80,000
	Less: Fixed Manufacturing overhead	$                    1,80,000
	Less : Fixed Marketing Expenses	$                    1,00,000
	Operating Income	$                    2,00,000