Question

prepare an income statement according to the variable costing concept

Sales (14,000 units) $1,680,000
Production costs (18,000 units):
Direct materials $799,200
Direct labor 383,400
Variable factory overhead 192,600
Fixed factory overhead 127,800 1,503,000
Selling and administrative expenses:
Variable selling and administrative expenses $233,000
Fixed selling and administrative expenses 90,200 323,200

Answer 1

To prepare an income statement using the variable costing concept, we need to separate costs into variable and fixed components. Under variable costing, only variable manufacturing costs are included in the cost of goods sold, while fixed manufacturing costs are treated as period costs and are expensed in the period incurred.

Here's how we can prepare the income statement based on the provided data:

### Income Statement (Variable Costing)

**For the Year Ended [Date]**

| **Description** | **Amount** |
|----------------------------------------------------|---------------------|
| **Sales** | |
| Sales Revenue (14,000 units) | $1,680,000 |
| | |
| **Variable Costs of Goods Sold:** | |
| Direct Materials | $799,200 |
| Direct Labor | $383,400 |
| Variable Factory Overhead | $192,600 |
| **Total Variable Costs of Goods Sold** | **$1,375,200** |
| | |
| **Contribution Margin** | |
| Sales Revenue - Total Variable Costs | $1,680,000 - $1,375,200 = $304,800 |
| | |
| **Variable Selling and Administrative Expenses** | $233,000 |
| | |
| **Total Contribution Margin** | $304,800 - $233,000 = **$71,800** |
| | |
| **Fixed Costs:** | |
| Fixed Factory Overhead | $127,800 |
| Fixed Selling and Administrative Expenses | $90,200 |
| **Total Fixed Costs** | **$218,000** |
| | |
| **Net Operating Income (Loss)** | $71,800 - $218,000 = **($146,200)** |

### Summary:
- **Sales Revenue:** $1,680,000
- **Variable Cost of Goods Sold:** $1,375,200
- **Contribution Margin:** $304,800
- **Variable Selling and Administrative Expenses:** $233,000
- **Total Contribution Margin:** $71,800
- **Total Fixed Costs:** $218,000
- **Net Operating Income (Loss):** **($146,200)**

This income statement reflects the variable costing approach where fixed manufacturing costs are not included in the cost of goods sold but are deducted as period expenses.