Quick Study 19-3 Variable costing income statement LO P2 Aces Inc., a manufactur

ID: 2586153 • Letter: Q

Question

Quick Study 19-3 Variable costing income statement LO P2 Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 5,900 rackets and sold 4,800. Each racket was sold at a price of S89. Fixed overhead costs are $76,110 and fixed selling and administrative costs are $65,100. The company also reports the following per unit costs for the year Variable production costs Variable selling and administrative expenses $24.90 S 1.90 Required Prepare an income statement under variable costing. ACES INC Variable Costing Income Statement Net income (loss)

Explanation / Answer

Solution:

19-3 – Variable Costing Income Statement

Variable Costing System

1) Product Cost refers to the costs used to fabricate/make/produce a product.

2) Under Variable Costing System, product cost includes only following variable manufacturing costs:

- Cost of direct material used

- Direct labor cost

- Variable manufacturing overheads.

3) Under this system, fixed costs are not considered in product cost and for valuation of closing stock of finished goods. Fixed costs are treated as period cost in this system.

4) The value of finished goods and work in process is also comprised only of Manufacturing Variable Costs.

5) Selling and administrative expenses are not included because these are not the expenses incurred in production department. These expenses relate to selling and admin department.

Variable Costing Income Statement

Sales Revenue (4800 Units x $89)

$427,200

Variable Production Cost (5900 Units x 24.90)

$146,910

Less: Ending Inventory (1,100 Units x 24.90)

-$27,390

Variable Selling and administrative expenses (4800*1.90)

$9,120

Total Variable Cost

$128,640

Contribution Margin

$298,560

Fixed Expenses:

Fixed Overhead Costs

$76,110

Fixed Selling and Administrative Costs

$65,100

Total Fixed Expenses

$141,210

Operating Income

$157,350

Ending Inventory = Produced Units – Sold Units = 5900 – 4800 = 1100 Units

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