Question

# Exercise 6-4 Variable costing income statement LO P2 Kenzi Kayaking, a manufacturer of kayaks, began operations...

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

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

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.

 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

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