Bionic Cotton Inc. manufactures and sells high-quality sporting goods equipment
ID: 2394070 • Letter: B
Question
Bionic Cotton Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable Cool Cat logo. The company began operations on January 1, 2016, and operated at 100% of capacity (84,000 units) during the first month, creating an ending inventory of 7,000 units. During February, the company produced 76,600 garments during the month but sold 83,600 units at $106 per unit. The February manufacturing costs and selling and administrative expenses were as follows:
* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign.
LABELS:
Variable selling and administrative expenses
A. Prepare an income statement according to the absorption costing concept for February. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Bionic Cotton Inc.
Absorption Costing Income Statement
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Cost of goods sold:
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B. Prepare an income statement according to the variable costing concept for February. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if it is required. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Bionic Cotton Inc
Variable Costing Income Statement
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Number of Units Unit Cost Total Cost Manufacturing costs in February beginning inventory: Variable 7,000 $50 $ 350,000 Fixed 7,000 10 70,000 Total $60 $420,000 February manufacturing costs: Variable 76,600 $50 $ 3,830,000 Fixed 76,600 12 919,200 Total $62 $4,749,200 Selling and administrative expenses: Variable $ 1,370,000 Fixed 320,000 Total $1,690,000Explanation / Answer
Solution A:
Solution B:
Solution C:
The reason for the difference in the amount of income from operations reported in A and B is because of fixed manufacturing overhead available in beginning inventory of $70,000. As this fixed overhead is expensed in variable costing in january, therefore variable costing income statement of february is higher than absorption costing income statement.
Bitonic Cotton Inc. Absorption Costing Income Statement For the month ended February 29, 2016 Particulars Amount Sales $8,861,600.00 Cost of goods sold: Beginning inventory $420,000.00 Add: Cost of goods manufactured $4,749,200.00 Less: Ending inventory $0.00 Cost of goods sold $5,169,200.00 Gross Profit $3,692,400.00 Selling and administrative expenses $1,690,000.00 Net Operating income $2,002,400.00Related Questions
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