Question

During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 48,000 mini refrigerators, of which 44,000 were sold. Operating data for the month are summarized as follows:
1. Sales $8,800,000.00
2. Manufacturing costs:
3. Direct materials $3,360,000.00
4 Direct labor 1,344,000.00
5 Variable manufacturing cost 816,000.00
6 Fixed manufacturing cost 528,000.00 6,048,000.00
7 Selling and administrative expenses:
8 Variable $528,000.00
9 Fixed 352,000.00 880,000.00

Required:
Prepare an income statement based on the absorption costing concept.

Answer 1

Answer:

Income statement based on the absorption costing concept

Sales                                                                              $8,800,000.00

Less Cost of Sales

Opening Stock                                            $0

Add Cost of Goods Manufactured $6,048,000.00

Less Closing Stock                           ($504,000.00)   ($5,544,000.00)

Gross Profit                                                                    $3,256,000.00

Less Expenses :

Selling and administrative expenses:

Variable                                                                           ($528,000.00 )

Fixed                                                                                ($352,000.00)

Net Income / (Loss)                                                             $2,376,000

Explanation:

Absorption Costing Concept

Product Cost = All Manufacturing Cost (Fixed and Variable)

Period Cost (Expense) = All Non - Manufacturing Costs

Production Cost Schedule - To determine Cost of Goods Sold

Direct materials                            $3,360,000.00

Direct labor                                    $1,344,000.00

Variable manufacturing cost           $816,000.00

Fixed manufacturing cost               $528,000.00

Total Manufacturing Cost            $6,048,000.00

Closing Stock = 4,000 units × ($6,048,000.00/48,000)

                        = $504,000.00