Question

Santana Rey expects sales of Business Solutions’s line of computer workstation furniture to equal 300 workstations (at a sales price of $3,000 each) for 2019. The workstations’ manufacturing costs include the following.

Direct materials	$	800		per unit
Direct labor	$	400		per unit
Variable overhead	$	100		per unit
Fixed overhead	$	24,000		per year

The selling expenses related to these workstations follow.

Variable selling expenses	$	50	per unit
Fixed selling expenses	$	4,000	per year

Santana is considering how many workstations to produce in 2019. She is confident that she will be able to sell any workstations in her 2019 ending inventory during 2020. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations.


Required:
1. Complete the following income statements using absorption costing.
2. Complete the following income statements using variable costing.

Answer 1

Solution :- On the basis of Information given, Income statements are as follows :-

1.Income Statement using absorption costing :

SANTANA REY
ABSORPTION COSTING INCOME STATEMENT
FOR THE YEAR ENDING 2019
Sales (300 Units * $ 3000)	$ 900000
Less : Cost of goods sold
Direct materials (300 Units *$800 ) = $ 240000 Direct Labor (300 Units * $400) = $ 120000 Variable overhead (300 Units * $100) = $ 30000 Fixed Overhead   = $ 24000	$ 414000
Gross Profit	$ 486000
Less : Selling Expenses Variable Selling Exp. (300 Units * $50) = $ 15000 Fixed selling expenses = $ 4000	$ 19000
Income	$ 467000

2.Income Statement using Variable costing :

SANTANA REY
VARIABLE COSTING INCOME STATEMENT
FOR THE YEAR ENDING 2019
Sales (300 Units * $ 3000)	$ 900000
Less : Variable Costs
Direct materials (300 Units *$800 ) = $ 240000 Direct Labor (300 Units * $400) = $ 120000 Variable overhead (300 Units * $100) = $ 30000 Variable Selling Exp. (300 Units * $50) = $ 15000	$ 405000
Contribution Margin	$ 495000
Less : Fixed Expenses Fixed overhead = $ 24000 Fixed selling expenses = $ 4000	$ 28000
Income	$ 467000