Variable Costing Income Statement On July 31, 2016, the end of the first month o

Question

Variable Costing Income Statement

On July 31, 2016, the end of the first month of operations, Holton Company prepared the following income statement, based on the absorption costing concept:

a. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $44,000 and the variable selling and administrative expenses were $31,000. 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 $292,000 with the variable costing income from operations determined in (a).

Sales (18,000 units) $972,000 Cost of goods sold: Cost of goods manufactured $748,000 Less ending inventory (4,000 units) 136,000 Cost of goods sold 612,000 Gross profit $360,000 Selling and administrative expenses 68,000 Income from operations $292,000

Explanation / Answer

a. Prepare a variable costing income statement

b. Reconcile the absorption costing income from operations of $292,000 with the variable costing income from operations determined in (a).

Sales 972000 Variable cost of goods sold: Variable cost of goods manufactured 704000 Less ending inventory (128000) Variable cost of goods sold 576000 Manufacturing margin 396000 Variable selling and administrative expenses
31000 Contribution margin 365000 Fixed costs : Fixed manufacturing costs 44000 Fixed selling and administrative expenses 37000 81000 Net operating income 284000

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