Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc.Absorption Costing Income StatementFor the Year Ended December 31 Sales $1,200,000 Cost of goods sold: Cost of goods manufactured $840,000 Ending inventory (168,000) Total cost of goods sold (672,000) Gross profit $528,000 Selling and administrative expenses (289,000) Operating income $239,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin. Saxon, Inc.Variable Costing Income StatementFor the Year Ended December 31 Sales $1,200,000 Variable cost of goods sold: Variable cost of goods manufactured $600,000 Ending inventory (120,000) Total variable cost of goods sold (480,000) Manufacturing margin $720,000 Variable selling and administrative expenses (224,000) Contribution margin $496,000 Fixed costs: Fixed manufacturing costs $240,000 Fixed selling and administrative expenses 65,000 Total fixed costs (305,000) Operating income $191,000 Method Comparison Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company’s sales price per unit is $75, and the number of units in ending inventory is 4,000. There was no beginning inventory. Item Amount Number of units sold fill in the blank 868411014f8c001_1 Variable sales and administrative cost per unit $fill in the blank 868411014f8c001_2 Number of units manufactured fill in the blank 868411014f8c001_3 Variable cost of goods manufactured per unit $fill in the blank 868411014f8c001_4 Fixed manufacturing cost per unit

Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc.Absorption Costing Income StatementFor the Year Ended December 31 Sales $1,200,000 Cost of goods sold: Cost of goods manufactured $840,000 Ending inventory (168,000) Total cost of goods sold (672,000) Gross profit $528,000 Selling and administrative expenses (289,000) Operating income $239,000 Variable Statement Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin. Saxon, Inc.Variable Costing Income StatementFor the Year Ended December 31 Sales $1,200,000 Variable cost of goods sold: Variable cost of goods manufactured $600,000 Ending inventory (120,000) Total variable cost of goods sold (480,000) Manufacturing margin $720,000 Variable selling and administrative expenses (224,000) Contribution margin $496,000 Fixed costs: Fixed manufacturing costs $240,000 Fixed selling and administrative expenses 65,000 Total fixed costs (305,000) Operating income $191,000 Method Comparison Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company’s sales price per unit is $75, and the number of units in ending inventory is 4,000. There was no beginning inventory. Item Amount Number of units sold fill in the blank 868411014f8c001_1 Variable sales and administrative cost per unit $fill in the blank 868411014f8c001_2 Number of units manufactured fill in the blank 868411014f8c001_3 Variable cost of goods manufactured per unit $fill in the blank 868411014f8c001_4 Fixed manufacturing cost per unit

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Absorption Statement

Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.

Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31
Sales		$1,200,000
Cost of goods sold:
Cost of goods manufactured	$840,000
Ending inventory	(168,000)
Total cost of goods sold		(672,000)
Gross profit		$528,000
Selling and administrative expenses		(289,000)
Operating income		$239,000

Variable Statement

Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin.

Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31
Sales		$1,200,000
Variable cost of goods sold:
Variable cost of goods manufactured	$600,000
Ending inventory	(120,000)
Total variable cost of goods sold		(480,000)
Manufacturing margin		$720,000
Variable selling and administrative expenses		(224,000)
Contribution margin		$496,000
Fixed costs:
Fixed manufacturing costs	$240,000
Fixed selling and administrative expenses	65,000
Total fixed costs		(305,000)
Operating income		$191,000

Method Comparison

Review the income statements on the Absorption Statement and Variable Statement, then complete the following table. The company’s sales price per unit is $75, and the number of units in ending inventory is 4,000. There was no beginning inventory.

Item	Amount
Number of units sold	fill in the blank 868411014f8c001_1
Variable sales and administrative cost per unit	$fill in the blank 868411014f8c001_2
Number of units manufactured	fill in the blank 868411014f8c001_3
Variable cost of goods manufactured per unit	$fill in the blank 868411014f8c001_4
Fixed manufacturing cost per unit

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