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Industries Inc. manufactures and sells high-quality camping tents. The compa O units) during the first month, creating an ending inventory of 6,400 units. D 70,400 units at $90 per unit. The February manufacturing costs and selling cturing costs in February 1 ing inventory: Number of Units 6.100 Unit Cost Total Cost $36.00 $230 400

Industries Inc. manufactures and sells high-quality camping tents. The compa O units) during the first month, creating an ending inventory of 6,400 units. D 70,400 units at $90 per unit. The February manufacturing costs and selling cturing costs in February 1 ing inventory: Number of Units 6.100 Unit Cost Total Cost $36.00 $230 400

Managerial Accounting
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter7: Variable Costing For Management analysis
Section: Chapter Questions
Problem 3E: Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began...
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Income Statements under Absorption Costing and Variable Costing Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (70,400 units) during the first month, creating an ending inventory of 6,400 units. During February, the company produced 64,000 units during the month but sold 70,400 units at $90 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Manufacturing costs in February 1 beginning inventory: Variable Fixed Total Manufacturing costs in February: Variable Fixed Total Selling and administrative expenses in February: Variable Fixed Total Number of Units Cost of goods sold: 6,400 $36.00 6,400 14.00 64,000 64,000 Unit Cost 70,400 70,400 Total Cost $230,400 89,600 $50.00 $320,000 $36.00 $2,304,000 15.40 985,600 $51.40 $3,289,600 $18.20 $1,281,280 7.00 492,800 $25.20 $1,774,080 a. Prepare an income statement according to the absorption costing concept for the month ending February 28. Fresno Industries Inc. Absorption Costing Income Statement For the Month Ended February 28 Line Item Description Amount Amount
Transcribed Image Text:Income Statements under Absorption Costing and Variable Costing Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (70,400 units) during the first month, creating an ending inventory of 6,400 units. During February, the company produced 64,000 units during the month but sold 70,400 units at $90 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Manufacturing costs in February 1 beginning inventory: Variable Fixed Total Manufacturing costs in February: Variable Fixed Total Selling and administrative expenses in February: Variable Fixed Total Number of Units Cost of goods sold: 6,400 $36.00 6,400 14.00 64,000 64,000 Unit Cost 70,400 70,400 Total Cost $230,400 89,600 $50.00 $320,000 $36.00 $2,304,000 15.40 985,600 $51.40 $3,289,600 $18.20 $1,281,280 7.00 492,800 $25.20 $1,774,080 a. Prepare an income statement according to the absorption costing concept for the month ending February 28. Fresno Industries Inc. Absorption Costing Income Statement For the Month Ended February 28 Line Item Description Amount Amount
b. Prepare an income statement according to the variable costing concept for the month ending February 28. Fresno Industries Inc. Variable Costing Income Statement For the Month Ended February 28 Line Item Description Amount Amount Fixed costs: c. What is the reason for the difference in the amount of operating income 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 operating income.
Transcribed Image Text:b. Prepare an income statement according to the variable costing concept for the month ending February 28. Fresno Industries Inc. Variable Costing Income Statement For the Month Ended February 28 Line Item Description Amount Amount Fixed costs: c. What is the reason for the difference in the amount of operating income 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 operating income.
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