Exercise 20-6 Absorption costing income statement On May 31, the end of the firs

Question

Exercise 20-6
Absorption costing income statement

On May 31, the end of the first month of operations, Trendwest Office Equipment Company prepared the following income statement, based on the variable costing concept:


sales (12000) units ................................ $648000

variable cost of good sold
variable cost of goods manufactured ........$311040
less inventory may 31 (2400) UNITS .................$ 51840
------------
variable cost of good sold $ 259200
________
manufacturing margin $ 388800
variable selling and administration expenses $ 168000
________
contribution margin...................................................... $220800

fixed costs :

fixed manufactured costs......................................$ 64800
fixed selling and administration expenses $ 51840 116640
___________ ------------
income from operation 104160 ......................



Prepare an income statement under absorption costing. Enter all amounts as positive numbers.
TRENDWEST OFFICE EQUIPMENT COMPANY
Absorption Costing Income Statement
For the Month Ended May 31, 2010
Sales _____________
Cost of goods sold: _________________
Less inventory, May 31 ____________
Cost of goods sold ___________
Gross profit ____________
Selling and administrative expenses ___________________
Income from operations _________________________

Explanation / Answer

Sales (12,000 units) .........................                              $648,000
Cost of goods sold:
Cost of goods manufactured ...............      $375,8401
Less inventory, May 31 (2,400 units).........      62,6402
Cost of goods sold .............................                             $259,200
Gross profit.....................................                             $388,800        
Selling and administrative expenses.........                             $168,000
Income from operations .......................                            $104,160

 

 

1      $311,040 + $64,800 (total variable plus fixed manufacturing cost)

2    ($375,840/$311,040) × $51,840 (the ratio of total to variable manufacturing cost
times the ending inventory valuation under variable costing); or $375,840/14,400
units manufactured = $26.10/unit; $26.10 × 2,400 units = $62,640.

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