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vovangra [49]
3 years ago
6

During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 80,000 mini refrigerators, of whi

ch 72,000 were sold. Operating data for the month are summarized as follows:
1 Sales $10,800,000.00
2 Manufacturing costs:
3 Direct materials $6,400,000.00
4 Direct labor 1,600,000.00
5 Variable manufacturing cost 1,280,000.00
6 Fixed manufacturing cost 320,000.00 9,600,000.00
7 Selling and administrative expenses:
8 Variable $1,080,000.00
9 Fixed 180,000.00 1,260,000.00
Required:
1. Prepare an income statement based on the absorption costing concept.*
2. Prepare an income statement based on the variable costing concept.*
3. Explain the reason for the difference in the amount of income from operations reported in (1) and (2).
Business
1 answer:
tiny-mole [99]3 years ago
8 0

Answer:

1.                     Absorption Costing Income Statement

                         For the month ended May 31, 2016

Sales                                                                     $10,800,000

<u>Cost of goods sold</u>

Beginning inventory                   -

Cost of goods manufactured    $9,600,000

Ending Inventory                         <u>$960,000</u>

Cost of goods sold                                                <u>$8,640,000</u>

Gross margin                                                          $2,160,000

<u>Selling and administrative expenses</u>

$1,080,000 + $180,000                                         <u>$1,260,000</u>

Income from operation                                           <u>$900,000</u>

<u />

2.             Variable Costing Income Statement

               For the month ended May 31, 2016

Sales                                                                            $10,800,000

<u>Variable cost of goods sold</u>

Beginning Inventory                     -

Variable cost of goods manufactured $9,280,000

Ending Inventory                                    $928,000

Variable cost of goods sold                                        <u>$8,352,000</u>

Manufacturing margin                                                  $2,448,000

Variable selling and administrative                             <u>$1,080,000</u>

expenses

Contribution margin                                                     $1,368,000

<u>Fixed Cost:</u>

Fixed manufacturing cost                        $320,000

Fixed selling and administrative              <u>$180,000</u>

expenses

Total fixed cost                                                                <u>$500,000</u>

Income from operation                                                  <u>$868,000</u>

<u />

3. The reason for difference of amount for income from operation is $32,000 ($900,000 - $868,000). It is due to fixed manufacturing cost which is included for ending inventory under absorption costing (320,000 / 80,000 * 8,000). Hence, income under absorption costing is higher by $32,000 as compared to income under variable costing.

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