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Contribution and Absorption Costing Income statement

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Based upon the following/attached information please review the attached income statements.

Required:
Prepare an income statement for the month using the contribution format
and the variable costing method

Variable Costing Contribution Format Income Statement Per
Total Unit
Sales ($120 per part x 8400 units) $1,008,000.00 $120.00
Variable expenses:
Variable costs of goods sold (8400units *$31 per part) $260,400.00 31
Variable selling and administrative expenses(8400*9) $75,600.00
Total variable expenses $336,000.00 31

Contribution margin (total sales-variable expenses) $672,000.00

Fixed expenses:
Fixed manufacturing overhead 151300
Fixed selling and administrative expenses 109200
Total fixed expenses $932,500.00

Net operating income (loss) -$260,500.00
CM-Fixed expenses (672000-932500)

Prepare an income statement for the month using the absorption costing
method

Absorption Costing Income Statement

Sales ($120 per part x 8400 units) $1,008,000.00
Less cost of goods sold:
Beginning inventory 0
Add Cost of goods manufactured

Goods available for sales
Less ending inventory
Gross Margin

Less Selling & admin expenses
Variable selling and admin expenses
Fixed selling and admin expenses

Net operating income

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The solution explains how to prepare income statement under variable and absorption costing

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See Also This Related BrainMass Solution

Absorption Versus Contribution Costing Income Statements

Far North Telecom, Ltd., of Ontario, has organized a new division to manufacture and sell specialty cellular telephones. The division's monthly costs are shown in the table below. Far North Telecom regards all of its workers as full-time employees and the company has a long-standing no layoff policy. Furthermore, production is highly automated. Accordingly, the company includes its labor costs in its fixed manufacturing overhead. The cellular phones sell for $150 each. During September, the first month of operations, the following activity was recorded: 12,000 units produced, 10,000 units sold.

Manufacturing costs:
Variable costs per unit:
Direct Materials $48
Variable manufacturing overhead $2
Fixed manufacturing overhead costs (total) $360,000
Selling and administration costs:
Variable 12% of sales
Fixed (total) $470,000

1. Compute the unit product cost under:
o absorption costing
o variable costing
2. Prepare an absorption costing income statement for September
3. Prepare a contribution format income statement for September using variable costing.
4. Assume that the company must obtain additional financing in order to continue operations. As a member of top management, would you prefer to rely on the statement in (2) above or in (3) above when meeting with a group of prospective investors?

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