On July 31, 2016, the end of the first month of operations, Rhys Company prepare

Question

On July 31, 2016, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept: Rhys Company Income Statement - Absorption Costing For the Month Ended July 31, 2016 1 Sales (97,000 units) $4,389,250.00 2 Cost of goods sold: 3 Cost of goods manufactured $3,159,000.00 4 Less ending inventory (20,000 units) 540,000.00 5 Cost of goods sold 2,619,000.00 6 Gross profit $1,770,250.00 7 Selling and administrative expenses 281,000.00 8 Income from operations $1,489,250.00 Required:

A. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $140,400 and the variable selling and administrative expenses were $116,400. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar.

B. Reconcile the absorption costing income from operations of $1,489,250 with the variable costing income from operations determined in (A).

Explanation / Answer

A. Vaiable Costing Income Statement Amount($) Sales (97,000 units)      4,389,250.00 Variable Cost(97000units*$25.8) (WN 2) (2,502,600.00) Variable Selling and adm exp (WN3) (97000*1.7)       (164,600.00) Contribution      1,722,050.00 Less: Fixed Cost Manufacturing       (140,400.00) Marketing       (116,400.00) Operating Income      1,465,250.00 W.N 1 Total Units Produced = Units sold+closing inventory = 97000 units+ 20000units = 117000 units W.N 2 Total Cost of goods Manufactured= $3,159,000 Less: Fixed Cost $140,400 Total Variable Manufacturing Cost $3,018,600 No of units produced 117000 units V.C per unit 25.8 W.N 3 Total Selling and administrative expenses $281,000 Less: Fixed Selling and administrative expenses 116400 Variable Selling and administrative expenses $164,600 No. of units sold 97000 Variable Selling and administrative expenses/unit 1.7 B. Reconciliattion statement between income from absorption costing and variable costing method Net income (absorption costing) $1,489,250 Less: Fixed manufacturing overheads carried forward (closing inventories) 24000 Net income (variable costing) $1,465,250 Fixed manufacturing overheads included in closing inventories = $1,40,400/117,000 × 20,000 = $2,4000

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