Answer:
a.Income statement according to the absorption costing concept.
Sales (19,500 units) $2,535,000
Less Cost of Goods Sold
Opening Stock $0
Add Cost of Goods Manufactured $2,260,000
Less Closing Stock ($497,200) ($1,762,800)
Gross Profit $772,200
Less Expenses :
Variable selling and administrative expenses ($350,300
)
Fixed selling and administrative expenses ($135,600)
Net Income / Loss $286,300
b.Income statement according to the variable costing concept.
Sales (19,500 units) $2,535,000
Less Cost of Goods Sold
Opening Stock $0
Add Cost of Goods Manufactured $2,067,500
Less Closing Stock ($454,850) ($1,612,650)
Contribution $922,350
Less Expenses :
Fixed factory overhead ($192,500)
Variable selling and administrative expenses ($350,300
)
Fixed selling and administrative expenses ($135,600)
Net Income / Loss $244,100
Explanation:
<u>Absorption Costing</u>
Cost of Goods Manufactured - Absorption Costing
Direct materials $1,202,500
Direct labor $577,500
Variable factory overhead $287,500
Fixed factory overhead $192,500
Total $2,260,000
Inventory = (25,000 - 19,500) / 25,000 × $2,260,000
= $497,200
<u>Variable Costing</u>
Cost of Goods Manufactured - Variable Costing
Direct materials $1,202,500
Direct labor $577,500
Variable factory overhead $287,500
Total $2,067,500
Inventory = (25,000 - 19,500) / 25,000 × $2,067,500
= $454,850
