6. Jackson Company produces plastic that is used for injection-molding applicati

Question

6. Jackson Company produces plastic that is used for injection-molding applications, such as gears for small motors Variable Costs Per Ton: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative costs S70 S20 $200 Fixed Costs per Year: Fixed manufacturing overhead Fixed selling and administrative costs S2,800,000 S500,000 he selling price per ton is $2,000 Instructions For each of the following cases, (1) prepare a variable costing income statement; (2) prepare an absorption costing income statement; and (3) explain the difference in the resu d. If 4,000 tons are produced and 3,500 tons are sold. e. If 4,000 tons are produced and 4,000 tons are sold. f. If 4,000 tons are produced and 5,000 tons are sold.

Explanation / Answer

Construct The Absorption Costing Unit Product Cost Direct Material 210.00 Direct labour 70.00 Variable Manufacturing overheads 20.00 Fixed Manufacturing overheads 700.00 Absorption costing unit prroduct cost 1,000.00 Case-D Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $7,000,000 Cost of Goods sold 3500000 Gross Margin $3,500,000 Selling and distribution expense 1,200,000 Net operating income 2,300,000 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 7,000,000 Less: Variable cost    variable cost of goods sold 1,050,000    Variable selling expense 700,000 1,750,000 Contribution margin 5,250,000 Fixed expense:    Fixed Manufacturing overheads 2,800,000    Fixed selling expense 500,000 Net operating Income 1,950,000 Reconciliation Statement: Net income as per Variable costing 1950000 Add: Fixed OH deferred (500 units @700) 350000 Net income as per Absorption costing 2300000 Case-E Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $8,000,000 Cost of Goods sold 4000000 Gross Margin $4,000,000 Selling and distribution expense 1,300,000 Net operating income 2,700,000 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 8,000,000 Less: Variable cost    variable cost of goods sold 1,200,000    Variable selling expense 800,000 2,000,000 Contribution margin 6,000,000 Fixed expense:    Fixed Manufacturing overheads 2,800,000    Fixed selling expense 500,000 Net operating Income 2,700,000 No difference Case-F Construct the Absorption Costing Income Statement Under FIFO Year 1 Sales $10,000,000 Cost of Goods sold 5000000 Gross Margin $5,000,000 Selling and distribution expense 1,500,000 Net operating income 3,500,000 Construct The Variable Costing Income Statement under FIFO YEAR 1 Sales 10,000,000 Less: Variable cost    variable cost of goods sold 1,500,000    Variable selling expense 1,000,000 2,500,000 Contribution margin 7,500,000 Fixed expense:    Fixed Manufacturing overheads 2,800,000    Fixed selling expense 500,000 Net operating Income 4,200,000 Reconciliation Statement: Net income as per Variable costing 4200000 Less: Fixed OH released (1000*700) 700000 Net income as per Absorption costing 3500000

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