Question

# Patagucci Inc. manufactures and sells athletic equipment. The company began operations on August 1, 2016, and...

Patagucci Inc. manufactures and sells athletic equipment. The company began operations on August 1, 2016, and operated at 100% of capacity (53,900 units) during the first month, creating an ending inventory of 4,900 units. During September, the company produced 49,000 garments but sold 53,900 units at \$105 per unit. The September manufacturing costs and selling and administrative expenses were as follows:

 Number of Units Unit Cost Total Cost Manufacturing costs in September beginning inventory: Variable 4,900 \$42.00 \$205,800 Fixed 4,900 16.00 78,400 Total \$58.00 \$284,200 September manufacturing costs: Variable 49,000 \$42.00 \$2,058,000 Fixed 49,000 17.60 862,400 Total \$59.60 \$2,920,400 Selling and administrative expenses: Variable \$1,121,120 Fixed 425,800 Total \$1,546,920

a. Prepare an income statement according to the absorption costing concept for September.

Solution

Patagucci Inc

Income Statement according to the absorption costing concept:

 Patagucci Inc Income Statement for the month ended September 30, 2016 (Absorption Costing Method) Sales (53,900 x 105) \$5,659,500 Cost of goods sold: Beginning inventory (4,900 x \$58) \$284,200 Cost of goods manufactured (49,000 x 59.60) \$2,920,400 Cost of goods sold \$3,204,600 Gross Profit \$2,454,900 Selling and administration expenses \$1,546,920 Net operating income \$907,980

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