To prepare an income statement according to the variable costing concept, we need to differentiate between variable and fixed costs. Variable costing includes only variable manufacturing costs in the cost of goods sold, while fixed manufacturing costs are treated as period expenses and charged in full to the period in which they occur.
Given Data:
- Sales (3,300 units): $125,400
- Cost of goods manufactured (3,894 units): $105,138
- Inventory, April 30 (594 units): $(16,038) (Not needed for variable costing)
- Fixed manufacturing costs: $25,233.12
- Selling and administrative expenses: $21,480 (this may include both fixed and variable elements)
- Operating income under absorption costing: $14,820 (Not needed for calculations)
Step-by-Step Calculation:
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Determine Variable Cost of Goods Sold:
- The total cost of goods manufactured under absorption costing includes both variable and fixed costs.
- First, calculate the variable cost per unit produced. We can find this using the total cost incurred and excluding fixed costs (using a portion of fixed costs in calculating the variable cost, assuming all is variable for simplification):
- Assume total variable manufacturing cost = COG manufactured - Fixed manufacturing costs: \[ \text{Total Variable Cost of Goods Manufactured} = \text{Cost of Goods Manufactured} - \text{Fixed Manufacturing Costs} \] \[ \text{Total Variable Cost of Goods Manufactured} = 105,138 - 25,233.12 = 79,904.88 \]
- Calculate variable cost per unit produced: \[ \text{Variable Cost per Unit Manufactured} = \frac{79,904.88}{3,894} \approx 20.50 \]
- Calculate the variable cost of goods sold based on units sold (3,300 units): \[ \text{Variable Cost of Goods Sold} = \text{Variable Cost per Unit} \times \text{Units Sold} \] \[ \text{Variable Cost of Goods Sold} = 20.50 \times 3,300 = 67,650 \]
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Selling and Administrative Expenses:
- We need to consider how many of the selling and administrative expenses are fixed. From the problem given, we know the fixed selling and administrative expenses are $10,520. We can assume the difference represents variable expenses. Thus, we allocate the fixed portion distinctly.
- We can service the fixed sense fully to selling expense along with the known prejudicial variable range. \[ \text{Total Selling and Administrative Expenses} = 21,480 \] Thus, the total variable selling and admin expenses: \[ \text{Variable Selling and Administrative Expenses} = \text{Total S&A Expenses} - \text{Fixed Selling and Administrative Expenses} \] \[ \text{Variable Selling and Administrative Expenses} = 21,480 - 10,520 = 10,960 \]
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Prepare the Variable Costing Income Statement: Now we can compile the variable costing income statement.
Joplin Company
Variable Costing Income Statement
For the Month Ended April 30
| Line Item Description | Amount | |----------------------------------------------|-------------| | Sales (3,300 units) | $125,400 | | Variable Cost of Goods Sold | (67,650) | | Gross Profit | $57,750 | | Variable Selling and Administrative Expenses | (10,960) | | Contribution Margin | $46,790 | | Fixed Manufacturing Costs | (25,233.12) | | Fixed Selling and Administrative Expenses | (10,520) | | Operating Income | $11,036.88 |
The resulting operating income calculated using the variable costing method is approximately $11,036.88.
Summary:
This income statement reflects the variable costs associated with production and selling, with fixed costs treated as a period expense.