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
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.
b. Reconcile the absorption costing income from operations of $1,656,000 with the variable costing income from operations determined in (a).
Answer:
a.
RHYS COMPANY
Income Statement—Variable Costing
For the Month Ended July 31, 2014
Sales $4,440,000
Variable cost of goods sold:
Variable cost of goods manufactured $2,988,000
Less ending inventory (24,000 units × $24.90) 597,600
Variable cost of goods sold 2,390,400
Manufacturing margin $2,049,600
Variable selling and administrative expenses 115,200
Contribution margin $1,934,400
Fixed costs:
Fixed manufacturing costs $ 132,000
Fixed selling and administrative expenses 172,800 304,800
Income from operations $1,629,600
Computations:
Variable cost of goods manufactured: $3,120,000 – $132,000 = $2,988,000
Units Sold = Units Manufactured – Units in Ending Inventory
96,000 = Units Manufactured – 24,000
120,000 = Units Manufactured
Unit cost of ending inventory:
Variable cost of goods manufactured per unit:
$2,988,000 ÷ 120,000 units manufactured = $24.90
Thus, variable cost of goods sold could alternatively be calculated:
$2,390,400 = 96,000 units × $24.90/unit
Fixed selling and administrative expenses: $288,000 – $115,200 = $172,800
b. Absorption costing income from operations…………………………………… $1,656,000
Variable costing income from operations……………………………………… 1,629,600
Difference……………………………………………………………….…………… $ 26,400
Note: The difference between the two income numbers can be reconciled
as follows:
Unit change in inventory………………………… 24,000 units
Fixed manufacturing cost per unit……………… × $1.10 ($132,000 ÷ 120,000 units)
Income from operations difference……………… $26,400