Question

Jackson Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2016, the first year of operations, Jackson produced 4,100 tons of plastic and sold 3,075 tons. In 2017, the production and sales results were exactly reversed. In each year, the selling price per ton was $ 2,000, variable manufacturing costs were 16% of the sales price of units produced, variable selling expenses were 10% of the selling price of units sold, fixed manufacturing costs were $ 2,788,000, and fixed administrative expenses were $ 530,000. Prepare income statements for each year using variable costing.

Answer 1

Variable costing income statement :

	2016	2017
Sales @2000	6150000	4100*2000 = 8200000
Less: Variable expense
Variable manufacturing cost	6150000*16% = 984000	8200000*16% = 1312000
Variable selling expense	6150000*10% = 615000	8200000*10% = 820000
Total variable cost	1599000	2132000
Contribution margin	4551000	6068000
Less: Fixed cost
Fixed manufacturing cost	2788000	2788000
Fixed administrative expense	530000	530000
Total fixed cost	3318000	3318000
Net operating income	1233000	2750000