Question

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.

Answer 1

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