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    Absorption and Variable Costing Calculations

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    The following absorption costing income statement and additional data are available from the accounting records of Bernon Co. for the month ended May 31, 2007. During the accounting period, 17,000 units were manufactured and sold at a price of $60 per unit. There were no beginning inventories.

    Bernon Co.
    Absorption Costing Income Statement
    for the Month Ended May 31, 2007

    Sales (17,000 @ $60) : $1,020,000

    Cost of goods sold : 612,000

    Gross profit : $ 408,000

    ------------------------

    Selling and administrative expenses 66,000

    ------------------------

    Income from operations $ 342,000

    -------------------------

    Manufacturing costs:
    (format: Total Cost - Number of Units - Unit Cost)
    Variable: $442,000 - 17,000 - $26

    Fixed : 170,000 - 17,000 - 10

    Total : $612,000 - 34, 000 - $36

    --------------------

    Selling and administrative expenses:

    Variable ($2 per unit sold) : $34,000

    Fixed : 32,000

    Total : $66,000

    ---------------------

    Q. Prepare a new income statement for the year using variable costing. Comment on the differences, if any, between the absorption costing and the variable costing income statements.

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    Solution Preview

    Absorption Costing Income Statement
    Month Ending May 31, 2007

    Sales (17000 x $60) : 1,020,000
    Cost of good sold : 476,000
    Gross Profit ...

    Solution Summary

    Absorption and variable costing calculations are examined. Selling and administrative expenses are analyzed.

    $2.19

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