Question

Santana Rey expects sales of Business Solutions’s line of computer workstation furniture to equal 300 workstations (at a sales price of $3,100 each) for 2019. The workstations’ manufacturing costs include the following.

Direct materials	$	790		per unit
Direct labor	$	380		per unit
Variable overhead	$	60		per unit
Fixed overhead	$	19,200		per year

The selling expenses related to these workstations follow.

Variable selling expenses	$	30	per unit
Fixed selling expenses	$	3,100	per year

Santana is considering how many workstations to produce in 2019. She is confident that she will be able to sell any workstations in her 2019 ending inventory during 2020. However, Santana does not want to overproduce as she does not have sufficient storage space for many more workstations.

Required:
1. Complete the following income statements using absorption costing.
2. Complete the following income statements using variable costing.

Answer 1

Income statement using absorption costing
sales (300*3100)				930000
less: cost of goods sold
direct material (300*790)			237000
direct labor (300*380)			114000
variable overhead (300*60)			18000
fixed overhead			19200	388200
Gross profit				541800
less: selling expenses
variable (30*300)			9000
fixed			3100	12100
Income				529700
Income statement using variable costing
sales (300*3100)				930000
less: variable cost
direct material (300*790)			237000
direct labor (300*380)			114000
variable overhead (300*60)			18000
variable selling expenses			9000
Total variable cost				378000
contribution margin				552000
less: fixed expenses
Fixed overhead			19200
fixed selling expenses			3100	22300
Income				529700