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 and $13,000 of variable selling and administrative 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:

AJ Manufacturing Company

Multi-Step Income Statement

For the year ended xx xx, xxxx

Revenue

Sales                                                                         $160,000

Cost of Goods Sold

Variable Product cost                               $40,000

Fixed Product cost                                    $50,000

                                                                                 $90,000

Gross Income / Income                                           $70,000

Less: Operating Expenses

Variable Selling & Administrative costs  $13,000

Fixed Selling & Administrative costs       $16,000

                                                                                 $29,000

Net Profit / Income                                                  $41,000

Explanation:

GAAP require two types of the income statements

1. Single-Step Income Statement
2. Multi-Step Income Statement

In single step income statement all revenue are calculated  and all expense are deducted from revenue to calculate net profit.

In multi-step the expenses are classified in the product / manufacturing expense and operating expenses. First manufacturing expenses are deducted from the net revenue to calculate the gross profit and then operating expense are deducted to calculate operating / net profit / income.