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Variable Costing Income Statement

On April 30, the end of the first month of operations, Joplin Company prepared the following income statement, based on the absorption costing concept:

Joplin Company
Absorption Costing Income Statement
For the Month Ended April 30
Line Item Description Amount Amount
Sales (3,300 units) $125,400
Cost of goods sold:
Cost of goods manufactured (3,894 units) $105,138
Inventory, April 30 (594 units) (16,038)
Total cost of goods sold (89,100)
Gross profit $36,300
Selling and administrative expenses (21,480)
Operating income $14,820

If the fixed manufacturing costs were $25,233.12 and the fixed selling and administrative expenses were $10,520, prepare an income statement according to the variable costing concept. Round all final answers to whole dollars.

Joplin Company
Variable Costing Income Statement
For the Month Ended April 30
Line Item Description Amount Amount

Sales
$Sales
125,400
Variable cost of goods sold:

Variable cost of goods manufactured
$Variable cost of goods manufactured
79,904.88

Inventory, April 30
Inventory, April 30

Total variable cost of goods sold
Total variable cost of goods sold
67,650

Manufacturing margin
$Manufacturing margin

Variable selling and administrative expenses
Variable selling and administrative expenses
10,960

Contribution margin
$Contribution margin
Fixed costs:

Fixed manufacturing costs
$Fixed manufacturing costs
25,233.12

Fixed selling and administrative expenses
Fixed selling and administrative expenses
10,520

Total fixed costs
Total fixed costs
35,753.12

Operating income
$Operating income
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Sales - (Variable Cost of Goods Manufactured* - Variable Costing Ending inventory**) = Manufacturing Margin; Manufacturing Margin - Variable Selling and Administrative Expenses = Contribution Margin; Contribution Margin - (Fixed Manufacturing Costs + Fixed Selling and Administrative Expenses) = Operating income

*Variable Cost of Goods Manufactured = Total Cost of Goods Manufactured - Fixed Manufacturing Cost

**Variable Costing Ending Inventory = (Variable Cost of Goods Manufactured/Total Units of Goods Manufactured) x Absorption Costing Ending Inventory Units (given)

Answer 1

To prepare the Variable Costing Income Statement, let's first gather the data provided and then perform the necessary calculations step by step.

Step 1: Calculate Variable Cost of Goods Manufactured

Given:

• Total Cost of Goods Manufactured (Absorption Costing): $105,138
• Fixed Manufacturing Costs: $25,233.12

Variable Cost of Goods Manufactured can be calculated as follows: \[ \text{Variable Cost of Goods Manufactured} = \text{Total Cost of Goods Manufactured} - \text{Fixed Manufacturing Costs} \] \[ \text{Variable Cost of Goods Manufactured} = 105,138 - 25,233.12 = 79,904.88 \]

Step 2: Calculate Variable Cost of Goods Sold

To calculate the Total Variable Cost of Goods Sold, we need the ending inventory calculated using variable costing.

Calculate Variable Costing Ending Inventory: We have:

• Total Variable Cost of Goods Manufactured = $79,904.88
• Total Units Manufactured = 3,894 units
• Ending Inventory (Absorption Costing) = 594 units

Variable Costing Ending Inventory can be determined as follows: \[ \text{Variable Costing Ending Inventory} = \left( \frac{\text{Variable Cost of Goods Manufactured}}{\text{Total Units Manufactured}} \right) \times \text{Ending Inventory Units} \] \[ \text{Variable Costing Ending Inventory} = \left( \frac{79,904.88}{3,894} \right) \times 594 \approx \left( 20.49 \right) \times 594 \approx 12,194.10 \text{ (rounded to whole dollars: 12,194)} \]

Now, we can calculate Total Variable Cost of Goods Sold: \[ \text{Total Variable Cost of Goods Sold} = \text{Variable Cost of Goods Manufactured} - \text{Variable Costing Ending Inventory} \] \[ \text{Total Variable Cost of Goods Sold} = 79,904.88 - 12,194 \approx 67,710.88 \text{ (rounded to whole dollars: 67,711)} \]

Step 3: Variable Selling and Administrative Expenses

Given:

• Total Selling and Administrative Expenses (Absorption Costing): $21,480
• Fixed Selling and Administrative Expenses: $10,520

Variable Selling and Administrative Expenses can be calculated by subtracting fixed selling and administrative expenses from the total selling and admin expenses. Assuming all selling and administrative expenses apart from the fixed portion are variable: \[ \text{Variable Selling and Administrative Expenses} = \text{Total Selling and Administrative Expenses} - \text{Fixed Selling and Administrative Expenses} \] \[ \text{Variable Selling and Administrative Expenses} = 21,480 - 10,520 = 10,960 \]

Step 4: Prepare the Variable Costing Income Statement

Now we can prepare the Variable Costing Income Statement using the calculated values.

Joplin Company
Variable Costing Income Statement
For the Month Ended April 30

| Line Item Description | Amount | |------------------------------------------------|-----------| | Sales | $125,400 | | Variable cost of goods sold: | | | Variable Cost of Goods Manufactured | 79,905 | | Less: Inventory, April 30 (Variable) | (12,194) | | Total Variable Cost of Goods Sold | (67,711) | | Manufacturing Margin | 57,689 | | Variable Selling and Administrative Expenses | (10,960) | | Contribution Margin | 46,729 | | Fixed Costs: | | | Fixed Manufacturing Costs | (25,233) | | Fixed Selling and Administrative Expenses | (10,520) | | Total Fixed Costs | (35,753) | | Operating Income | $10,976 |

Final totals can be rounded as needed.