James Walton, vice president of marketing for charming Curices, has just receive

Question

James Walton, vice president of marketing for charming Curices, has just received the April 2000 income statement, shown below, which was prepared on a variable costing basis. The firm uses a variable costing system for internal reporting purposes. The controller attached the following notes to the statements: The unit sales price for April was $48 the unit variable manufacturing costs for the month were $24 The budgeted unit fixed manufacturing costs for the month was $10 The rate for fixed manufacturing costs is a predetermined rate based on a normal monthly production of 100.000 units. Production for April was 5,000 units in excess of sales, and the April ending inventory consisted of 8,000 units. (March production was 100,000 units. Sales for the month of April were based on FIFO, which is the entire beginning finished good inventory for the month of April was sold before of April production was sold. Assume there is no beginning of ending work in process for the months of March and April.) Present the April income statement in good form on an absorption costing basis. Make sure you show the COGS in detail.

Explanation / Answer

Answer:

Opening stock = sales + closing stock -production =100000+8000-105000 = 3000Units Production units = Sles Units + 5000 = 100000+5000 = 105000 Statement under absorption Costing ( $ '000) (A) Sales Revenue(100000*48) = 4800 Variable Manufacturing cost = 2520 (105000*24) Fixed Overhead Expenses = 1050 (105000*10) Total Cost Of Production = 3570 Add) Opening Stock = 102 (34*3000) Less)Closing Stock                      = 272 (8000*34) Cost of Goods Sold                     = 3400 Less)Over Absorbption            = 50 (5000*10) Add) Selling and Distribution= 800 (B)Cost of Sales = 4150 Profit (A-B) 650

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