Chapter 11, Problem 13E

Prepare an income statement using the contribution margin approach

AJ Manufacturing Company incurred $50,000 of fixed product cost and $40,000 of variable product cost during its first year of operation. Also during its first year, AJ incurred $16,000 of fixed and $13,000 of variable selling and administrative costs. The company sold all of the units it produced for $160,000.

Required

1. a. Prepare an income statement using the format required by generally accepted accounting principles (GAAP).
2. b. Prepare an income statement using the contribution margin approach.
3. c. Explain why both statements have the same amount of net income.