On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarized the results for January: Units Production 50,000 Sales ($18 per unit) (42,000) Inventory, January 31 ৪,000 Manufacturing costs: Variable $575,000 Fixed 80,000 Total $655,000 Selling and administrative expenses: Variable $35,000 Fixed 10,500 Total $45,500 a. Prepare an income statement using absorption costing.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
![On January 1 of the current year, Townsend Co. commenced operations. It operated its plant at 100% of capacity during January. The following data summarIzed the results for January:
Units
Production
50,000
Sales ($18 per unit)
(42,000)
Inventory, January 31
8,000
Manufacturing costs:
Variable
$575,000
Fixed
80,000
Total
$655,000
Selling and administrative expenses:
Variable
$35,000
Fixed
10,500
Total
$45,500
a. Prepare an income statement using absorption costing.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa048ceca-7375-441e-8f01-d9cb05371f0e%2Ff2d564f9-86a9-4088-8700-9b14b60630fc%2Fn7llz53_processed.jpeg&w=3840&q=75)
![b. Prepare an income statement using variable costing.
Townsend Co.
Variable Costing Income Statement
For the Month Ended January 31
Variable cost of goods sold:
Fixed costs:
Operating income.
%24](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa048ceca-7375-441e-8f01-d9cb05371f0e%2Ff2d564f9-86a9-4088-8700-9b14b60630fc%2Fivloez_processed.jpeg&w=3840&q=75)
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