Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During thi

Question

Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,050 kayaks and sold 800. at a price of $1,050 each. At this first year-end, the company reported the following income statement information using absorption costing. Sales (800 x $1,050) Cost of goods sold (800x $475) Gross margin Selling and administrative expenses Net income $ 840,000 380,000 460,000 210,000 $ 250,000 Additional Information a. Product cost per kayak totals $475, which consists of $375 in variable production cost and $100 in fixed production cost -the latter amount is based on $105,000 of fixed production costs allocated to the 1,050 kayaks produced. b. The $210,000 in selling and administrative expense consists of $75,000 that is variable and $135,000 that is fixed. Required 1. Prepare an income statement for the current year under variable costing

Explanation / Answer

Income Statement (variable costing) for the year ended December 31,2015 sales 840,000 Variable expense Variable production costs (800*375) 300000 Variable selling and administrative costs 75,000 total variable expense 375,000 Contribution margin 465,000 Fixed expense Fixed overhead 105,000 Fixed selling and administrative cost 135,000 total fixed expenses 240,000 Net income 225,000 net income under Absorption costing is higher than net income under variable costing by : 25,000 ending inventory units 250 fixed production cost per unit 100 fixed cost added to inventory 25000

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