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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 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

Goods available for sales
Less ending inventory
Gross Margin

Net operating income

#### Solution Summary

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

\$2.19

## 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