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

Question

3. 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) Cost of goods sold: Cost of goods manufactured Less ending inventory (400 units) Cost of goods sold Gross profit Selling and administrative expenses Income from opcrations S104,000 $85,500 ?400 74.100 $ 29,900 21.500 S 8,400 If the fixed manufacturing costs were S42,900 and the variable selling and administrative expenses were S14,600, prepare an income statement in accordance with the variable costing concept.

Explanation / Answer

Prepare income statement according with the variable costing concept :

Sales 104000 Variable cost of goods sold : Variable cost of goods manufactured (85500-42900) 42600 Less: Ending inventory (400 Units) 5680 Variable cost of goods sold 36920 Manufacturing margin 67080 Variable selling and administrative expense 14600 Contribution margin 52480 Fixed cost Fixed manufacturing cost 42900 Fixed selling and administrative expense 6900 Total fixed cost 49800 Net operating income 2680

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