Chapter 21, Problem 21.28EX

Appendix

Absorption costing income statement

On June 30, the end of the first month of operations, Tudor Manufacturing Co. prepared the following income statement, based on the variable existing concept:

Sales (420,000 units)		$7,450,000
Variable cost of goods sold:
Variable cost of goods manufactured (500,000 units x $14 per unit)	$7,000,000
Less ending inventory (80,000 units x $14 per unit)	1,120,000
Variable cost of goods sold		5,880,000
Manufacturing margin		$1,570,000
Variable selling and administrative expenses		80,000
Contribution margin		$1,490,000
Fixed costs:
Fixed manufacturing costs	$ 160,000
Fixed selling and administrative expenses	75,000	235,000
Income from operations		$1,255,000

• a. Prepare an absorption costing income statement.
• b. Reconcile the variable costing income from operations of $1,255,000 with the absorption costing income from operations determined in (a).