Question

AJ Manufacturing Company incurred $56,000 of fixed product cost and $44,800 of variable product cost during its first year of operation. Also during its first year, AJ incurred $17,800 of fixed and $14,200 of variable selling and administrative costs. The company sold all of the units it produced for $184.000 Required a. Prepare an income statement using the format required by generally accepted accounting Principles (GAAP) AJ MANUFACTURING COMPANY Income Statement

Answer 1

a) Income Statement using GAAP AJ MANUFACTURING COMPANY Income Statement Sales Less Cost of Goods Sold $ 184,000 (44,800) (56,000) $ $ Variable Cost of Goods Sold Fixed Cost of Goods Sold Gross Margin Less: Selling & admninistrative costs (100,800) $ $ 83,200 Variable Selling and administratve costs (14,200) $ (17,800) $ (32,000) Fixed Selling and administratve costs Net Income 51,200

b) Income Statement using Contribution Margin approach AJ MANUFACTURING COMPANY Income Statement Sales Less Variable Costs 184,000 (44,800) Variable Cost of Goods Sold (14,200) $ (59,000) $ Variable Selling and administratve costs Contribution Margin Less Fixed Costs 125,000 (56,000) (17,800) Fixed Cost of Goods Sold (73,800) Fixed Selling and administratve costs Net Income $ 51,200 Note The company sold all the units produced by it, hence the cost of production is the cost of goods sold as there is no inventory at the end of the year.