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stich3 [128]
3 years ago
7

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 1,260,000.00Required:
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:
andrew-mc [135]3 years ago
5 0

Answer:

Absorption Costing Net Income  1008,000

Variable Costing Net Income     976,000

Explanation:

<u><em>Kodiak Fridgeration Company</em></u>

Units Produced = 80,000

Units Sold = 72,000

Ending Inventory = 8000

<u>Per Units Cost </u>

Direct materials $6,400,000/80,000 = $ 80

Direct labor 1,600,000 /80,000= $ 20

Variable manufacturing cost 1,280,000/80,000= $ 16

Fixed manufacturing cost 320,000 /80,000 = $ 4            

Absorption Manufacturing Cost  per unit= 9,600,000/80,000= $ 120

Variable Manufacturing Costs per unit = $ 116

<u><em></em></u>

<u><em>Kodiak Fridgeration Company</em></u>

<u><em>Income Statement </em></u>

<u><em>Absorption Costing</em></u>

<u>Sales                                                              $10,800,000 </u>

Manufacturing costs:

Direct materials $6,400,000

Direct labor 1,600,000

Variable manufacturing cost 1,280,000

Fixed manufacturing cost 320,000                 9,600,000

Less Ending Inventory (8000*120)                     (960,000)

<u>Cost of Goods Sold                                           86,40,000</u>

Gross Profit                                                         2160,000

Selling and administrative expenses:

Variable $ 72,000* 13.5=                                    972,000

Fixed                                                                      180,000                                                  

Net Income                                                        1008,000

<em><u>Kodiak Fridgeration Company</u></em>

<em><u>Income Statement </u></em>

<em><u>Variable Costing</u></em>

Sales                                                              $10,800,000

Variable manufacturing cost

(80,000*116)                                                       9280,000

Less Ending Inventory ( 8000*116)                     928,000

<u>Cost of Goods Sold                                           83,52,000</u>                  

Gross Contribution Margin                                 2448,000

Variable Selling and administrative expenses

(72000 * $1,080,000/80,000)                              972,000

Contribution Margin                                            1476,000

Less Fixed Expenses

Fixed manufacturing cost 320,000

Fixed 180,000                                                    500,000

Net Income                                                          976,000

3. The difference in absorption and variable costing income is because in absorption costing the fixed costs are treated as unit cost and in variable costs the fixed costs are treated as period costs. Also the fixed costs of the ending units is deducted in absorption costing where it is not deducted in variable costing.

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