Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (60,500 units) during the first month, creating an ending inventory of 5,500 units. During February, the company produced 55,000 units during the month but sold 60,500 units at $90 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Number of UnitsUnit CostTotalCostManufacturing costs in February 1 beginning inventory: Variable5,500 $36.00 $198,000 Fixed5,500 14.00 77,000 Total $50.00 $275,000 Manufacturing costs in February: Variable55,000 $36.00 $1,980,000 Fixed55,000 15.40 847,000 Total $51.40 $2,827,000 Selling and administrative expenses in February: Variable60,500 $18.20 $1,101,100 Fixed60,500 7.00 423,500 Total $25.20 $1,524,600 Question Content Areaa. Prepare an income statement according to the absorption costing concept for the month ending February 28.Fresno Industries Inc.Absorption Costing Income StatementFor the Month Ended February 28 $SalesCost of goods sold: $Beginning inventory Cost of goods manufactured Total cost of goods sold $Gross profit Selling and administrative expenses $Operating income Question Content Areab. Prepare an income statement according to the variable costing concept for the month ending February 28.Fresno Industries Inc.Variable Costing Income StatementFor the Month Ended February 28 $Sales Variable cost of goods sold $Manufacturing margin Variable selling and administrative expenses $Contribution marginFixed costs: $Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs $Operating income Question Content Areac. What is the reason for the difference in the amount of operating income reported in (a) and (b)?Under the 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.

The income statement is prepared to find the net income or loss incurred during the period. The…

Answered: Fresno Industries Inc. manufactures and…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 3E: Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began...

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Question Content Area

a. Prepare an income statement according to the absorption costing concept for the month ending February 28.

Fresno Industries Inc.Absorption Costing Income StatementFor the Month Ended February 28

		$Sales
Cost of goods sold:
	$Beginning inventory
	Cost of goods manufactured
		Total cost of goods sold
		$Gross profit
		Selling and administrative expenses
		$Operating income

Question Content Area

b. Prepare an income statement according to the variable costing concept for the month ending February 28.

Fresno Industries Inc.Variable Costing Income StatementFor the Month Ended February 28

		$Sales
		Variable cost of goods sold
		$Manufacturing margin
		Variable selling and administrative expenses
		$Contribution margin
Fixed costs:
	$Fixed manufacturing costs
	Fixed selling and administrative expenses
		Total fixed costs
		$Operating income

Question Content Area

c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?

Under the

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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	Number of Units	Unit Cost	Total Cost
Manufacturing costs in February 1 beginning inventory:
Variable	5,500		$36.00		$198,000
Fixed	5,500		14.00		77,000
Total		$50.00		$275,000
Manufacturing costs in February:
Variable	55,000		$36.00		$1,980,000
Fixed	55,000		15.40		847,000
Total		$51.40		$2,827,000
Selling and administrative expenses in February:
Variable	60,500		$18.20		$1,101,100
Fixed	60,500		7.00		423,500
Total		$25.20		$1,524,600