Question

AJ Manufacturing Company incurred $50,000 of fixed product cost and $40,000 of variable product cost during its first year of operation. Also during its first year, AJ incurred $16,000 of fixed selling and administrative costs and $13000 of variable selling and adminstrative costs. The company sold all of the units it produced for $160,000.Required:Prepare an income statement using the format required by generally accepted accounting Principles (GAAP).

Answer 1

Answer:

Sales= 160,000

COGS= (40,000 + 50,000)= (90,000)

Gross profi= 70,000

Other expenses:

Fixed selling and administrative costs= (16,000)

Variable selling and administrative costs= (13,000)

Net operating income= $41,000

Explanation:

Giving the following information:

$50,000 of the fixed product cost

$40,000 of variable product cost during its first year of operation.

$16,000 of the fixed selling and administrative costs

$13000 of variable selling and administrative costs.

The company sold all of the units it produced for $160,000

Under GAAP requirements, the income statement follows this structure:

Sales Revenue

(Cost of goods sold)

=Gross profit

(Operating expenses)

Income from other Operations

= Earnings before interest and taxes (EBIT)

(interest)

= Earnings before Tax

(Tax)

=Net operating income

In the example:

Sales= 160,000

COGS= (40,000 + 50,000)= (90,000)

Gross profi= 70,000

Other expenses:

Fixed selling and administrative costs= (16,000)

Variable selling and administrative costs= (13,000)

Net operating income= $41,000