Cost of Goods Manufactured, using Variable Costing and Absorption Costing On March 31, the end of the first year of operations, Barnard Inc., manufactured 5,500 units and sold 4,700 units. The following income statement was prepared, based on the variable costing concept: Barnard Inc. Variable Costing Income Statement For the Year Ended March 31, 20Y1 Sales Variable cost of goods sold: Variable cost of goods manufactured Inventory, March 31 Total variable cost of goods sold Manufacturing margin Total variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income $1,111,000 (161,600) $506,000 159,800 $1,974,000 (949,400) $1,024,600 (235,000) $789,600 (665,800) $123,800

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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### Financial Statement Analysis

#### Inventory Information (March 31)
- Inventory, March 31: $(161,600)

#### Variable Costs and Margins
- Total Variable Cost of Goods Sold: $(949,400)
- Manufacturing Margin: $1,024,600
- Total Variable Selling and Administrative Expenses: $(235,000)
- Contribution Margin: $789,600

#### Fixed Costs
- Fixed Manufacturing Costs: $506,000
- Fixed Selling and Administrative Expenses: $159,800
- Total Fixed Costs: $(665,800)

#### Operating Income
- Operating Income: $123,800

### Costing Concepts
1. **Variable Costing**
   - [Input box] (marked incorrect with red 'X')
   
2. **Absorption Costing**
   - [Input box] (marked incorrect with red 'X')

Feedback section is present for input corrections. 

This analysis focuses on understanding how costs are categorized and their impact on the financial performance of a company. The goal is to determine how different costing methods affect the unit cost of goods manufactured.
Transcribed Image Text:### Financial Statement Analysis #### Inventory Information (March 31) - Inventory, March 31: $(161,600) #### Variable Costs and Margins - Total Variable Cost of Goods Sold: $(949,400) - Manufacturing Margin: $1,024,600 - Total Variable Selling and Administrative Expenses: $(235,000) - Contribution Margin: $789,600 #### Fixed Costs - Fixed Manufacturing Costs: $506,000 - Fixed Selling and Administrative Expenses: $159,800 - Total Fixed Costs: $(665,800) #### Operating Income - Operating Income: $123,800 ### Costing Concepts 1. **Variable Costing** - [Input box] (marked incorrect with red 'X') 2. **Absorption Costing** - [Input box] (marked incorrect with red 'X') Feedback section is present for input corrections. This analysis focuses on understanding how costs are categorized and their impact on the financial performance of a company. The goal is to determine how different costing methods affect the unit cost of goods manufactured.
**Variable Costing Income Statement Analysis**

**Concept Overview:**
This section presents a detailed analysis of Barnard Inc.’s income statement, using the variable costing method for the financial year ending March 31, 20Y1. This method focuses on the costs that vary directly with production levels, excluding fixed costs from the product cost and treating them as period expenses.

---

**Income Statement:**

- **Sales:** $1,974,000

- **Variable Cost of Goods Sold:** 
  - Variable cost of goods manufactured: $1,111,000
  - Less: Inventory, March 31: $(161,600)
  - **Total Variable Cost of Goods Sold:** $(949,400)

- **Manufacturing Margin:** $1,024,600

- **Total Variable Selling and Administrative Expenses:** $(235,000)

- **Contribution Margin:** $789,600

- **Fixed Costs:**
  - Fixed manufacturing costs: $506,000
  - Fixed selling and administrative expenses: $159,800
  - **Total Fixed Costs:** $(665,800)

- **Operating Income:** $123,800

---

**Explanation of Key Sections:**

1. **Variable Cost of Goods Sold:**
   - Represents the direct costs associated with manufacturing the goods sold during the year, adjusted for ending inventory.

2. **Manufacturing Margin:**
   - Calculated by subtracting the total variable cost of goods sold from sales. This figure shows the amount available to cover non-manufacturing variable costs and fixed costs.

3. **Contribution Margin:**
   - Determined by subtracting total variable selling and administrative expenses from the manufacturing margin. It indicates the portion of sales revenue that contributes to covering fixed costs and generating profit.

4. **Fixed Costs:**
   - Consist of fixed manufacturing and fixed selling and administrative expenses, which remain constant irrespective of production levels.

5. **Operating Income:**
   - Captures the profit realized from operations after accounting for all variable and fixed costs.

This analysis of Barnard Inc.’s financial performance through variable costing provides insights into how production levels impact profitability, assisting in strategic decision-making for manufacturing and sales.
Transcribed Image Text:**Variable Costing Income Statement Analysis** **Concept Overview:** This section presents a detailed analysis of Barnard Inc.’s income statement, using the variable costing method for the financial year ending March 31, 20Y1. This method focuses on the costs that vary directly with production levels, excluding fixed costs from the product cost and treating them as period expenses. --- **Income Statement:** - **Sales:** $1,974,000 - **Variable Cost of Goods Sold:** - Variable cost of goods manufactured: $1,111,000 - Less: Inventory, March 31: $(161,600) - **Total Variable Cost of Goods Sold:** $(949,400) - **Manufacturing Margin:** $1,024,600 - **Total Variable Selling and Administrative Expenses:** $(235,000) - **Contribution Margin:** $789,600 - **Fixed Costs:** - Fixed manufacturing costs: $506,000 - Fixed selling and administrative expenses: $159,800 - **Total Fixed Costs:** $(665,800) - **Operating Income:** $123,800 --- **Explanation of Key Sections:** 1. **Variable Cost of Goods Sold:** - Represents the direct costs associated with manufacturing the goods sold during the year, adjusted for ending inventory. 2. **Manufacturing Margin:** - Calculated by subtracting the total variable cost of goods sold from sales. This figure shows the amount available to cover non-manufacturing variable costs and fixed costs. 3. **Contribution Margin:** - Determined by subtracting total variable selling and administrative expenses from the manufacturing margin. It indicates the portion of sales revenue that contributes to covering fixed costs and generating profit. 4. **Fixed Costs:** - Consist of fixed manufacturing and fixed selling and administrative expenses, which remain constant irrespective of production levels. 5. **Operating Income:** - Captures the profit realized from operations after accounting for all variable and fixed costs. This analysis of Barnard Inc.’s financial performance through variable costing provides insights into how production levels impact profitability, assisting in strategic decision-making for manufacturing and sales.
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