Income Statements under Absorption Costing and Variable Costing Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (270,000 units) during the first month, creating an ending inventory of 24,000 units. During June, the company produced 246,000 garments during the month but sold 270,000 units at $300 per unit. The June manufacturing costs and selling and administrative expenses were as follows: Number ofUnits UnitCost TotalCost Manufacturing costs in June 1 beginning inventory: Variable 24,000 $150.00 $ 3,600,000 Fixed 24,000 32.80 787,200 Total $182.80 $4,387,200 Manufacturing costs in June: Variable 246,000 $150.00 $36,900,000 Fixed 246,000 36.00 8,856,000 Total $186.00 $45,756,000 Selling and administrative expenses in June: Variable 270,000 $ 45.00 $12,150,000 Fixed 270,000 3.60 972,000 Total $ 48.60 $13,122,000 a. Prepare an income statement according to the absorption costing concept for June. Joplin Industries Inc. Absorption Costing Income Statement For the Month Ended June 30 $ Cost of goods sold: $ $ $ b. Prepare an income statement according to the variable costing concept for June. Joplin Industries Inc. Variable Costing Income Statement For the Month Ended June 30 $ $ $ Fixed costs: $ $ c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the income statement will have a lower income from operations.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Income Statements under Absorption Costing and Variable Costing
Joplin Industries Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable J-Sports logo. The company began operations on May 1 and operated at 100% of capacity (270,000 units) during the first month, creating an ending inventory of 24,000 units. During June, the company produced 246,000 garments during the month but sold 270,000 units at $300 per unit. The June
| Number of Units |
Unit Cost |
Total Cost |
||||
| Manufacturing costs in June 1 beginning inventory: | ||||||
| Variable | 24,000 | $150.00 | $ 3,600,000 | |||
| Fixed | 24,000 | 32.80 | 787,200 | |||
| Total | $182.80 | $4,387,200 | ||||
| Manufacturing costs in June: | ||||||
| Variable | 246,000 | $150.00 | $36,900,000 | |||
| Fixed | 246,000 | 36.00 | 8,856,000 | |||
| Total | $186.00 | $45,756,000 | ||||
| Selling and administrative expenses in June: | ||||||
| Variable | 270,000 | $ 45.00 | $12,150,000 | |||
| Fixed | 270,000 | 3.60 | 972,000 | |||
| Total | $ 48.60 | $13,122,000 |
a. Prepare an income statement according to the absorption costing concept for June.
| Joplin Industries Inc. | ||
| Absorption Costing Income Statement | ||
| For the Month Ended June 30 | ||
| $ | ||
| Cost of goods sold: | ||
| $ | ||
| $ | ||
| $ |
b. Prepare an income statement according to the variable costing concept for June.
| Joplin Industries Inc. | ||
| Variable Costing Income Statement | ||
| For the Month Ended June 30 | ||
| $ | ||
| $ | ||
| $ | ||
| Fixed costs: | ||
| $ | ||
| $ |
c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)?
Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the income statement will have a lower income from operations.
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