Question

Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (46,200 units) during the first month, creating an ending inventory of 4,200 units. During February, the company produced 42,000 units during the month but sold 46,200 units at $115 per unit. The February manufacturing costs and selling and administrative expenses were as follows:

Number of Units Unit Cost Total Cost
Manufacturing costs in February 1 beginning inventory:   Variable 4,200 $46.00 $193,200 Fixed 4,200 17.00 71,400 Total $63.00 $264,600 Manufacturing costs in February:   Variable 42,000 $46.00 $1,932,000 Fixed 42,000 18.70 785,400 Total $64.70 $2,717,400 Selling and administrative expenses in February:   Variable 46,200 $22.10 $1,021,020 Fixed 46,200 7.00 323,400 Total $29.10 $1,344,420

a. Prepare an income statement according to the absorption costing concept for the month ending February 28.

b. Prepare an income statement according to the variable costing concept for the month ending February 28.

Answer 1

Answer:

	Fresno Industries Inc
A)	ABSORPTION COSTING INCOME STATEMENT
	Sales (46200*155)		5,313,000
	Cost of goods sold:
	Cost of goods manufactured	2,717,400
	Beginning inventory	264,600
	Cost of goods sold		2,982,000
	Gross profit		2,331,000
	Selling and administration expenses		1,344,420
	Income from operations		986,580
	Fresno Industries Inc
B)	VARIABLE COSTING INCOME STATEMENT
	Sales (46200*155)		5,313,000
	Variable cost of goods sold (193200+1932000)		2,125,200
	Manufacturing margin		3,187,800
	Variable selling and administrative expenses		1,021,020
	Contribution margin		2,166,780
	Fixed costs:
	Fixed manufacturing costs	42,000
	Fixed selling and administrative expenses	323,400	365,400
	Income from operations		1,801,380