During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 80,000 mini refrigerators, of which 72,000 were sold. Operating data for the month are summarized as follows: 1. Sales $10,800,000.00
2. Manufacturing costs:
3. Direct materials $6,400,000.00
4. Direct labor 1,600,000.00
5. Variable manufacturing cost 1,280,000.00
6. Fixed manufacturing cost 320,000.00 9,600,000.00
7. Selling and administrative expenses:
8. Variable $1,080,000.00
9. Fixed 180,000.00 1,260,000.00

Required:
a. Prepare an income statement based on the absorption costing concept.
b. Prepare an income statement based on the variable costing concept.

Answer #1

WORKING NOTES: 1

CALCUALTION OF cost of production units by using absorption and variable Costing

Opening stock0

Unit Produced =80000

Unit Sold =72000

Closing Stock =8000

CALCULATION OF PER UNIT COST Per unit Cost

Direct Material$ 64,00,000$ 80

Direct Labour$ 16,00,000$ 20

Vairable Manufacturing Overhead$ 12,80,000$ 16

Fixed Manufacturing Overhead$ 3,20,000$ 4

Cost of Production per unit$ 96,00,000$ 120

WORKING NOTES: 2

ParticularsAbsorption CostingVariable Costing

Direct Material$ 80$ 80

Direct Labour$ 20$ 20

Vairable Manufacturing Overhead$ 16$ 16

Fixed Manufacturing Overhead$ 4$ -

Cost of Production per unit$ 120.0$ 116.00

SOLUTION : 1

ABOSRPTION COSTING INCOME STATEMENTSAbsorption Costing

Sales$ 1,08,00,000

Cost of Goods Sold

Beginning inventory$ -

Cost of Goods Manufactured$ 96,00,000

Less: Ending Inventory (8,000 X $ 120)$ 9,60,000

Cost of Goods Sold$ 86,40,000

Gross Profit$ 21,60,000

Less : Selling Expenses

Fixed Selling Expenses$ 10,80,000

Variable Selling Expenses(40,000 units * 3)$ 1,80,000

Net Income$ 9,00,000

SOLUTION : 2

VARIABLE COSTING INCOME STATEMENTSVariable Costing

Sales$ 1,08,00,000

Cost of Goods Sold

Beginning inventory$ -

Cost of Goods Manufactured (80,000 units X $ 116)$ 92,80,000

Less: Ending Inventory (8,000 Units X $ 116)$ 9,28,000

Cost of Goods Sold$ 83,52,000

Selling Expenses$ 10,80,000

Gross Profit$ 13,68,000

Less: Fixed Manufacturing overhead$ 3,20,000

Less : Fixed Selling Expenses$ 1,80,000

Net Income$ 8,68,000

SOLUTION : 3

Difference in profit in both method is due to closing inventory. In absorption costing Fixed manufacturing

overhead is charged on cost of goods sold but in variable costing this expenses is charged as periodical cost

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