Question

Exercise 6-4 Variable costing income statement LO P2

Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,025 kayaks and sold 775. at a price of $1,025 each. At this first year-end, the company reported the following income statement information using absorption costing.
  

Sales (775 × $1,025)	$	794,375
Cost of goods sold (775 × $450)		348,750
Gross margin		445,625
Selling and administrative expenses		240,000
Net income	$	205,625

Additional Information

Product cost per kayak totals $450, which consists of $350 in variable production cost and $100 in fixed production cost—the latter amount is based on $102,500 of fixed production costs allocated to the 1,025 kayaks produced.

The $240,000 in selling and administrative expense consists of $95,000 that is variable and $145,000 that is fixed.

Required

1. Prepare an income statement for the current year under variable costing.

Exercise 6-4 Variable costing income statement LO P2

Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,025 kayaks and sold 775. at a price of $1,025 each. At this first year-end, the company reported the following income statement information using absorption costing.
  

Sales (775 × $1,025)	$	794,375
Cost of goods sold (775 × $450)		348,750
Gross margin		445,625
Selling and administrative expenses		240,000
Net income	$	205,625

Additional Information

Product cost per kayak totals $450, which consists of $350 in variable production cost and $100 in fixed production cost—the latter amount is based on $102,500 of fixed production costs allocated to the 1,025 kayaks produced.

The $240,000 in selling and administrative expense consists of $95,000 that is variable and $145,000 that is fixed.

Required

1. Prepare an income statement for the current year under variable costing.

Answer 1

	Income Statement (Variable Costing)
Sales		794375
Less: Variable expense
Variable production costs	271250
Variable selling and administrative cost	95000
Total Variable expenses		366250
Contribution margin		428125
Less: Fixed expenses
Fixed overhead	102500
Fixed selling and administrative cost	145000
Total fixed expenses		247500
Net income		180625
Net income under absorption costing is higher than net income under variable costing by		25000
Number of units added to (subtracted from) inventory		250
Fixed overhead cost per unit		100
Fixed costs added to inventory		25000