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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.

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

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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Solution Summary

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

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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