Question

On October 31, the end of the first month of operations, Maryville Equipment Company prepared the following income statement, based on the variable costing concept: Maryville Equipment Company Variable Costing Income Statement For the Month Ended October 31 Sales (220,000 units) $7,920,000 Variable cost of goods sold: Variable cost of goods manufactured $6,360,000 Inventory, October 31 (45,000 units) (1,080,000) Total variable cost of goods sold (5,280,000) Manufacturing margin $2,640,000 Variable selling and administrative expenses (330,000) Contribution margin $2,310,000 Fixed costs: Fixed manufacturing costs $530,000 Fixed selling and administrative expenses 100,000 Total fixed costs (630,000) Operating income $1,680,000 Prepare an income statement under absorption costing.

Answer 1

Answer:

Income statement under absorption cost:

Sales Revenue                       7,920,000

COGS 220,000 x 26 =        (5,720,000)  

Gross profit:                           2,200,000

S&A expense:                          (990,000)          

variable:      330,000

fixed:           630,000                                    

         Operating Income         1,210,000

Explanation:

Variable cost of goods manufactured $6,360,000

Fixed costs: Fixed manufacturing costs $530,000

Under absorption cost, the company will distribute the manufacturing cost over the units produced:

variable manufacturing cost: 6,360,000

fixed manufacturing cost:          530,000

Total cost:                                   6,890,00

Units produced:                          265,000

units sold 220,000

+ ending inventory 45,000

Cost per units:                                      26

 The selling and adminsitrative (S&A) will be count as period cost.