Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (56,100 units) during the first month, creating an ending inventory of 5,100 units. During February, the company produced 51,000 units during the month but sold 56,100 units at $80 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Number of Units Unit Cost Total Cost Manufacturing costs in February 1 beginning inventory: Variable 5,100 $32.00 $163,200 Fixed 5,100 12.00 61,200 Total $44.00 $224,400 Manufacturing costs in February: Variable 51,000 $32.00 $1,632,000 Fixed 51,000 13.20 673,200 Total $45.20 $2,305,200 Selling and administrative expenses in February: Variable 56,100 $15.60 $875,160 Fixed 56,100 7.00 392,700 Total $22.60 $1,267,860 a. Prepare an income statement according to the absorption costing concept for the month ending February 28. b. Prepare an income statement according to the variable costing concept for the month ending February 28.
Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (56,100 units) during the first month, creating an ending inventory of 5,100 units. During February, the company produced 51,000 units during the month but sold 56,100 units at $80 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Number of Units Unit Cost Total Cost Manufacturing costs in February 1 beginning inventory: Variable 5,100 $32.00 $163,200 Fixed 5,100 12.00 61,200 Total $44.00 $224,400 Manufacturing costs in February: Variable 51,000 $32.00 $1,632,000 Fixed 51,000 13.20 673,200 Total $45.20 $2,305,200 Selling and administrative expenses in February: Variable 56,100 $15.60 $875,160 Fixed 56,100 7.00 392,700 Total $22.60 $1,267,860 a. Prepare an income statement according to the absorption costing concept for the month ending February 28. b. Prepare an income statement according to the variable costing concept for the month ending February 28.
Chapter1: Financial Statements And Business Decisions
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Income Statements under Absorption Costing and Variable Costing
Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (56,100 units) during the first month, creating an ending inventory of 5,100 units. During February, the company produced 51,000 units during the month but sold 56,100 units at $80 per unit. The February
| Number of Units | Unit Cost | Total Cost |
||||
| Manufacturing costs in February 1 beginning inventory: | ||||||
| Variable | 5,100 | $32.00 | $163,200 | |||
| Fixed | 5,100 | 12.00 | 61,200 | |||
| Total | $44.00 | $224,400 | ||||
| Manufacturing costs in February: | ||||||
| Variable | 51,000 | $32.00 | $1,632,000 | |||
| Fixed | 51,000 | 13.20 | 673,200 | |||
| Total | $45.20 | $2,305,200 | ||||
| Selling and administrative expenses in February: | ||||||
| Variable | 56,100 | $15.60 | $875,160 | |||
| Fixed | 56,100 | 7.00 | 392,700 | |||
| Total | $22.60 | $1,267,860 |
a. Prepare an income statement according to the absorption costing concept for the month ending February 28.
b. Prepare an income statement according to the variable costing concept for the month ending February 28.
Transcribed Image Text:Income Statements under Absorption Costing and Variable Costing
Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (56,100 units)
during the first month, creating an ending inventory of 5,100 units. During February, the company produced 51,000 units during the month but sold 56,100 units at $80
per unit. The February manufacturing costs and selling and administrative expenses were as follows:
Number of
Unit
Total
Units
s
Cost
Cost
Manufacturing costs in February 1 beginning inventory:
Variable
5,100
$32.00
$163,200
Fixed
5,100
12.00
61,200
Total
$44.00
$224,400
Manufacturing costs in February:
Variable
51,000
$32.00 $1,632,000
Fixed
51,000
13.20
673,200
Total
$45.20 $2,305,200
Selling and administrative expenses in February:
Variable
56,100
$15.60
$875,160
Fixed
56,100
7.00
392,700
Total
$22.60 $1,267,860
a. Prepare an income statement according to the absorption costing concept for the month ending February 28.
Fresno Industries Inc.
Absorption Costing Income Statement
For the Month Ended February 28
Cost of goods sold:
Transcribed Image Text:b. Prepare an income statement according to the variable costing concept for the month ending February 28.
Fresno Industries Inc.
Variable Costing Income Statement
For the Month Ended February 28
Fixed costs:
c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?
Under the
v method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under
all of
the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory decreases, the
income statement will have a lower operating income.
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