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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Variable costing income statement

On July 31, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept:

Sales (96,000 units) $4,440,000
Cost of goods sold:
Cost of goods manufactured $3,120,000
Less ending inventory (24,000 units) 624,000
Cost of goods sold 2,496,000
Gross profit $1,944,000
Selling and administrative expenses 288,000
Income from operations $1,656,000
  1. a. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $132,000 and the variable selling and administrative expenses were $115,200.
  2. b. Reconcile the absorption costing income from operations of $1,656,000 with the variable costing income from operations determined in (a).

a.

To determine

Variable costing income statement: It refers to an income statement that is prepared by a company for decision-making process and for other internal purposes. In this statement, the cost of goods manufactured includes only the variable costs such as direct materials, direct labor, and variable manufacturing/factory overhead. However, the fixed factory overhead is considered as period expense.

To prepare: a variable costing income statement.

Explanation

Prepare a variable costing income statement.

Variable Costing Income Statement
R Company
For the year ended 31, July, 20XX
Particulars Amount ($) Amount ($)
Sales 4,440,000
Less: Variable cost of goods sold:
Variable cost of goods manufactured 2,988,000 (1)
Less: Variable Ending inventory (597,600) (2)
Variable cost of goods sold 2,390,400 (4)
Manufacturing Margin 2,049,600
Less: Variable selling and administration expenses (115,200)
Contribution Margin 1,934,400
Less: Fixed Costs:
          Fixed manufacturing costs 132,000
          Fixed selling and administrative expenses    172,800 (6) (304,800)
Income from operations 1,629,600

Table (1)

Working notes:

Determine the variable cost of goods manufactured.

Cost of goods manufactured =$3,120,000

Fixed manufacturing costs =$132,000

 Variablecostofgoodsmanufactured]=(Costofgoodsmanufactured)(Fixedmanufacturingcosts)=$3,120,000$132,000=$2,988,000 (1)

Determine the number of units manufactured.

Number of units sold =96,000 units

Number of units in ending inventory =24,000 units

 Unitssold=(Unitsmanufactured)(Unitsinendinginventory)96,000units=(Unitsmanufactured)24,000units(Unitsmanufactured)=96,000+24,000(Unitsmanufactured)=120,000 (2)

Determine the variable cost of goods manufactured per unit.

Variable cost of goods manufactured =$2,988,000 (1)

Number of units manufactured = 120,000 units (2)

 Variablecostofgoodsmanufacturedperunit]=VariablecostofgoodsmanufacturedUnitsmanufactured=$2,988,000120,000units=$24

b.

To determine

To reconcile: the absorption costing income from operations with the variable costing income statement.

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