Question

AJ Manufacturing Company incurred $57,500 of fixed product cost and $46,000 of variable product cost during its first year of operation. Also during its first year, AJ incurred $18.250 of fixed and $14,500 of variable selling and administrative costs. The company sold all of the units it produced for $190,000 Required a. Prepare an income statement using the format required by generally accepted accounting Principles (GAAP). AJ MANUFACTURING COMPANY Income Statement

Answer 1

Answer:

Solution a) Format of Income Statement required by GAAP
Particulars	Amount($)
Revenues	1,90,000
Cost of goods sold(57500+46000)	1,03,500
Gross profit	86,500
Selling, general and administrative expenses(18250+14500)	32,750
Net Income	53,750
Solution b) Income Statement using Contribution Margin Approach
Particulars	Amount($)
Revenues	1,90,000
Variable costs:
Variable Product Cost	46,000
Variable Selling and Administrative Cost	14,500
Total Variable Cost	60,500
Contribution = Revenues - Total Variable Cost	1,29,500
Fixed Costs
Fixed Product Cost	57,500
Fixed Selling and Administrative Cost	18,250
Total Fixed Cost	75,750
Net Profit = Contribution - Total Fixed Cost	53,750