Alice Bohne obtained a patent on a small electronic device and organized Bohne P

Question

Alice Bohne obtained a patent on a small electronic device and organized Bohne Products, Inc., to produce and sell the device. During the first month of operations, the device was very well received on the market, so Ms. Bohne looked forward to a healthy profit. For this reason, she was surprised to see a loss for the month on her income statement. This statement was prepared by her accounting service, which takes great pride in providing its clients with timely financial data. The statement follows:

Ms. Bohne is discouraged over the loss shown for the month, particularly because she had planned to use the statement to encourage investors to purchase stock in the new company. A friend, who is a CPA, insists that the company should be using absorption costing rather than variable costing. He argues that if absorption costing had been used, the company would probably have reported a profit for the month.

Selected cost data relating to the product and to the first month of operations follow:

Variable selling and administrative expenses

During the second month of operations, the company again produced 24,000 units but sold 27,000 units. (Assume no change in total fixed costs.)

Prepare a contribution format income statement for the month using variable costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

Prepare an income statement for the month using absorption costing. (Input all amounts as positive values except losses which should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.)

Reconcile the variable costing and absorption costing net operating incomes. (Loss amounts and amounts to be deducted should be indicated with a minus sign. Round your intermediate calculations to 2 decimal places.)

Bohne Products, Inc.
Income Statement Sales (21,000 units) $ 762,300 Variable expenses: Variable cost of goods sold $ 254,100 Variable selling and administrative expenses 161,700 415,800 Contribution margin 346,500 Fixed expenses: Fixed manufacturing overhead 194,400 Fixed selling and administrative expenses 219,000 413,400 Net operating loss $ (66,900)

Explanation / Answer

2. a

variable costing income statement

sales

980100

variable expenses

variable cost of goods sold

326700

variable selling and admin

207900

534600

contribution margin

445500

fixed expenses

fixed manufacturing OH

194400

fixed selling and admin

219000

413400

net operating income

32100

b. Absorption costing income statement

sales

980100

cost of goods sold

545400

gross margin

434700

selling and admin expenses

426900

net operating income

7800

c. reconciliation of variable costing and absorption costing

Variable costing net income operating income(loss)

32100

Deduct: Fixed manufacturing overhead cost released from inventory

24300

absorption costin net operating income(loss)

7800

2. a

variable costing income statement

sales

980100

variable expenses

variable cost of goods sold

326700

variable selling and admin

207900

534600

contribution margin

445500

fixed expenses

fixed manufacturing OH

194400

fixed selling and admin

219000

413400

net operating income

32100

b. Absorption costing income statement

sales

980100

cost of goods sold

545400

gross margin

434700

selling and admin expenses

426900

net operating income

7800

c. reconciliation of variable costing and absorption costing

Variable costing net income operating income(loss)

32100

Deduct: Fixed manufacturing overhead cost released from inventory

24300

absorption costin net operating income(loss)

7800

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