Question
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.
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.
Answers
GPT-4o mini
To prepare the income statement using variable costing, we need to consider the variable costs only and allocate the fixed manufacturing costs separately.
### Key Components of Variable Costing:
1. **Sales:** This remains the same as in the absorption costing income statement.
2. **Variable Cost of Goods Sold:** This will include only variable manufacturing costs, which are derived from total costs after excluding fixed manufacturing costs.
3. **Variable Selling and Administrative Expenses:** These are part of the total selling and administrative expenses if they include variable components. Let's assume that all selling and administrative expenses are variable for the purpose of this statement.
4. **Fixed Costs:** These will not be allocated to the product cost under variable costing but will instead be treated as period costs.
### Given Data:
1. **Sales (3,300 units):** $125,400
2. **Cost of Goods Manufactured (3,894 units):** $105,138
3. **Ending Inventory (594 units):** $16,038
4. **Fixed Manufacturing Costs:** $25,233.12
5. **Fixed Selling and Administrative Expenses:** $10,520
6. **Total Selling and Administrative Expenses:** $21,480 (assumed variable component)
### Calculation of Variable Cost of Goods Sold:
To calculate the variable cost of goods sold, we start with the total cost of goods manufactured and subtract the fixed manufacturing costs from it.
**Average Variable Cost per Unit:**
\[
\text{Variable Cost per Unit} = \frac{\text{Total Cost of Goods Manufactured - Fixed Costs}}{\text{Total Units Manufactured}}
\]
\[
\text{Variable Cost per Unit} = \frac{\$105,138 - \$25,233.12}{3,894} = \frac{\$79,904.88}{3,894} \approx \$20.50
\]
### Total Variable Cost of Goods Sold:
Total variable cost for sold goods pertaining to 3,300 units:
\[
\text{Variable Cost of Goods Sold} = 3,300 \text{ units} \times \$20.50 \approx \$67,650
\]
### Variable Selling and Administrative Expenses:
Assuming that selling and administrative expenses are variable, we take the total sales and subtract fixed selling and administrative expenses.
#### Total Variable Selling and Administrative Expenses:
\[
\text{Total Variable S&A Expenses} = \text{Total S&A Expenses} - \text{Fixed S&A Expenses}
\]
\[
\text{Total Variable S&A Expenses} = \$21,480 - \$10,520 = \$10,960
\]
### Variable Costing Income Statement Preparation:
Now we can create the income statement according to the variable costing concept.
### 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:** | |
| Beginning Inventory | $0 |
| Variable Cost of Goods Manufactured | $79,904.88 |
| Ending Inventory (Variable Portion) | ($12,208.76)|
| Total Variable Cost of Goods Sold | **(67,650)**|
| **Gross Profit** | **$57,750** |
| **Variable Selling and Administrative Expenses** | **(10,960)**|
| **Variable Operating Income** | **$46,790** |
| **Fixed Manufacturing Costs** | **(25,233.12)** |
| **Fixed Selling and Administrative Expenses** | **(10,520)**|
| **Operating Income (Net Income)** | **$11,036.88** |
This completes the variable costing income statement for Joplin Company for the month ended April 30.
Note that you should confirm assumptions such as the proportion of selling and administrative costs that are variable, as well as the relationship between manufacturing costs and production levels for greater accuracy.
### Key Components of Variable Costing:
1. **Sales:** This remains the same as in the absorption costing income statement.
2. **Variable Cost of Goods Sold:** This will include only variable manufacturing costs, which are derived from total costs after excluding fixed manufacturing costs.
3. **Variable Selling and Administrative Expenses:** These are part of the total selling and administrative expenses if they include variable components. Let's assume that all selling and administrative expenses are variable for the purpose of this statement.
4. **Fixed Costs:** These will not be allocated to the product cost under variable costing but will instead be treated as period costs.
### Given Data:
1. **Sales (3,300 units):** $125,400
2. **Cost of Goods Manufactured (3,894 units):** $105,138
3. **Ending Inventory (594 units):** $16,038
4. **Fixed Manufacturing Costs:** $25,233.12
5. **Fixed Selling and Administrative Expenses:** $10,520
6. **Total Selling and Administrative Expenses:** $21,480 (assumed variable component)
### Calculation of Variable Cost of Goods Sold:
To calculate the variable cost of goods sold, we start with the total cost of goods manufactured and subtract the fixed manufacturing costs from it.
**Average Variable Cost per Unit:**
\[
\text{Variable Cost per Unit} = \frac{\text{Total Cost of Goods Manufactured - Fixed Costs}}{\text{Total Units Manufactured}}
\]
\[
\text{Variable Cost per Unit} = \frac{\$105,138 - \$25,233.12}{3,894} = \frac{\$79,904.88}{3,894} \approx \$20.50
\]
### Total Variable Cost of Goods Sold:
Total variable cost for sold goods pertaining to 3,300 units:
\[
\text{Variable Cost of Goods Sold} = 3,300 \text{ units} \times \$20.50 \approx \$67,650
\]
### Variable Selling and Administrative Expenses:
Assuming that selling and administrative expenses are variable, we take the total sales and subtract fixed selling and administrative expenses.
#### Total Variable Selling and Administrative Expenses:
\[
\text{Total Variable S&A Expenses} = \text{Total S&A Expenses} - \text{Fixed S&A Expenses}
\]
\[
\text{Total Variable S&A Expenses} = \$21,480 - \$10,520 = \$10,960
\]
### Variable Costing Income Statement Preparation:
Now we can create the income statement according to the variable costing concept.
### 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:** | |
| Beginning Inventory | $0 |
| Variable Cost of Goods Manufactured | $79,904.88 |
| Ending Inventory (Variable Portion) | ($12,208.76)|
| Total Variable Cost of Goods Sold | **(67,650)**|
| **Gross Profit** | **$57,750** |
| **Variable Selling and Administrative Expenses** | **(10,960)**|
| **Variable Operating Income** | **$46,790** |
| **Fixed Manufacturing Costs** | **(25,233.12)** |
| **Fixed Selling and Administrative Expenses** | **(10,520)**|
| **Operating Income (Net Income)** | **$11,036.88** |
This completes the variable costing income statement for Joplin Company for the month ended April 30.
Note that you should confirm assumptions such as the proportion of selling and administrative costs that are variable, as well as the relationship between manufacturing costs and production levels for greater accuracy.