Income Statements under Absorption Costing and Variable CostingFresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity(70,400 units) during the first month, creating an ending inventory of 6,400 units. During February, the company produced 64,000 units during the monthbut sold 70,400 units at $90 per unit. The February manufacturing costs and selling and administrative expenses were as follows:Manufacturing costs in February 1beginning inventory:VariableFixedTotalManufacturing costs in February:VariableFixedTotalSelling and administrative expenses inFebruary:VariableFixedTotalNumberofUnitsCost of goods sold:6,400 $36.006,400 14.0064,00064,000UnitCost70,40070,400TotalCost$230,40089,600$50.00 $320,000$36.00 $2,304,00015.40 985,600$51.40 $3,289,600$18.20 $1,281,2807.00 492,800$25.20 $1,774,080a. 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 28Line Item Description Amount Amount 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 28Line Item Description Amount AmountFixed costs:c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?Under themethod, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Underall of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventorydecreases, theincome statement will have a lower operating income.

Fresno Industries IncAbsorption Costing income statementFor the month ended Feb 28Sale Revunue $…

Industries Inc. manufactures and sells high-quality camping tents. The compa O units) during the first month, creating an ending inventory of 6,400 units. D 70,400 units at $90 per unit. The February manufacturing costs and selling cturing costs in February 1 ing inventory: Number of Units 6.100 Unit Cost Total Cost $36.00 $230 400

Industries Inc. manufactures and sells high-quality camping tents. The compa O units) during the first month, creating an ending inventory of 6,400 units. D 70,400 units at $90 per unit. The February manufacturing costs and selling cturing costs in February 1 ing inventory: Number of Units 6.100 Unit Cost Total Cost $36.00 $230 400

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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Lens Junction sells lenses for $43 each and is estimating sales of 15,000 units in January and 19,000 in February. Each lens consists of 2 pounds of silicon costing $2.50 per pound, 3 oz of solution costing $3 per ounce, and 30 minutes of direct labor at a labor rate of $14 per hour. Desired inventory levels are: Jan. 31 Feb. 28 Mar. 31 Beginning inventory Finished goods 4,300 4,900 4,900 Direct materials: silicon 8,400 9,100 9,300 Direct materials: solution 11,000 11,800 12,900
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