On October 31, the end of the first month of operations, Morristown & Co. prepar

Question

On October 31, the end of the first month of operations, Morristown & Co. prepared the following income statement based on absorption costing:

Morristown & Co.

Income Statement

For Month Ended October 31, 20-

Sales (2,600 units) $104,000

Cost of goods sold:

Cost of goods manufactured $85,500

Less ending inventory (400 units) 11,400

Cost of goods sold 74,100

Gross profit $ 29,900

Selling and administrative expenses 21,500

Income from operations $ 8,400

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If the fixed manufacturing costs were $42,900 and the variable selling and administrative expenses were $14,600, prepare an income statement in accordance with the variable costing concept.

Explanation / Answer

At the beginning of the year, Monroe Company estimates annual overhead costs to be $900,000 and that 300,000 machine hours will be operated. Using machine hours as a base, the amount of overhead applied during the year if actual machine hours for the year was 315,000 hours is

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