Sales (420,000 units). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,450,000
Variable cost of goods sold:
Variable cost of goods manufactured (500,000 units × $14 per unit). . . . . . $7,000,000
Less ending inventory (80,000 units × $14 per unit). . . . . . . . . . . . . . . . . . . . . . 1,120,000
Variable cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,880,000
Manufacturing margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,570,000
Variable selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000
Contribution margin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,490,000
Fixed costs:
Fixed manufacturing costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 160,000
Fixed selling and administrative expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000 235,000
Income from operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,255,000
a. Prepare an absorption costing income statement.
b. Reconcile the variable costing income from operations of $1,255,000 with the absorption costing income from operations determined in (a).
Answer:
a.
TUDOR MANUFACTURING CO.
Income Statement—Absorption Costing
For the Month Ended June 30, 2014
Sales $7,450,000
Cost of goods sold:
Cost of goods manufactured (500,000 units × $14.32) $7,160,000
Less ending inventory (80,000 units × $14.32) 1,145,600
Cost of goods sold 6,014,400
Gross profit $1,435,600
Selling and administrative expenses ($80,000 + $75,000) 155,000
Income from operations $1,280,600
Computations:
Cost of goods manufactured: $7,000,000 + $160,000 = $7,160,000
Unit cost of ending inventory:
Total cost of goods manufactured:
$7,160,000 ÷ 500,000 units manufactured = $14.32
Variable costing income from operations…………………………………… $1,255,000
Absorption costing income from operations……………………………… 1,280,600
Difference………………………………………………………………………… $ 25,600
b. Note: The difference between the two income numbers can be reconciled
as follows:
Unit change in inventory………………………… 80,000 units
Fixed manufacturing cost per unit………………× $0.32 ($160,000 ÷ 500,000 units)
Income from operations difference…………… $25,600