Question

On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January:
Units
Production 50,000
Sales ($18 per unit) (42,000)
Inventory, January 31 8,000
Manufacturing costs: Variable $575,000
Fixed 80,000
Total $655,000
Selling and administrative expenses:
Variable $35,000
Fixed 10,500
Total $45,500

Required:
a. Prepare an income statement using absorption costing.
b. Prepare an income statement using variable costing.

Answer 1

Answer:

Income statement using absorption costing.

Sales                                                                                   $756,000

Less Cost of Goods Sold  

Opening Stock                                           $0

Total Manufacturing Costs                  $655,000

Less Closing Stock                              ($104,800)          ($550,200)

Gross Profit                                                                       $205,800

Less Operating Expenses

Selling and administrative expenses:

Variable                                                $35,000

Fixed                                                      $10,500              ($45,500)

Net Income                                                                        $160,300

Explanation:

The Product cost is the to total of all manufacturing costs.