Question

Kenzi kayaking a manufacturer of kayaks began operations this year. During this first year the company produced 1075 kayaks and sold 825 at a price of $1075 each. At this first year-end, the company reported the following income statement information using absorption costing.
Sales (825x $1,075) Cost of goods sold (825x $475) Gross margin Selling and administrative expenses Net income
$886,875 391,875 495,000 210,000 $285,000

Additional Information:
a. Product cost per kayak totals $500, which consists of $400 in variable cost production cost and $100 in fixed production cost- the latter amount is based on 107500 of fixed production cost allocated to the 1075 kayaks produced.
b. The $210,000 in selling and administrative expense consists of $75,000 that is variable and $135,000 that is fixed.

Required:
Prepare an income statement for the current year under variable costing.

Answer 1

Answer:

Income Statement for the Current Year under Variable Costing

Sales (825 × $1,075)                                                                          $886,875

Less Cost of Sales

Opening Stock                                                                     $0

Add Cost of Goods Manufactured ( 1075 × $400)       $430,000

Less Closing Inventory (250 × $400)                           ($100,000) ($330,000)

Contribution                                                                                        $556,875

Less Expenses :

Fixed Manufacturing Overheads                                                      ($107,500)

Selling and administrative expense : Variable                                  ($75,000)

Selling and administrative expense : Fixed                                     ($135,000)

Net Income / (Loss)                                                                             $239,375

Explanation:

Under variable costing, only variable costs of production are included in cost of goods sold. Both the Non - Production and Fixed Production Costs are treated as Period Cost Expensed during the year.