On January 1 of the current year, Townsend Co. commenced operations. It operated

Question

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.
(b) Prepare an income statement using variable costing.

Explanation / Answer

a) Sales = $42000*18 = $756,000 Less: Manufacturing costs(total) = $655,000 Less: Selling and administrative expenses (total) = $ 45,500 Income = $55,500 b) Sales = $42000*18 = $756,000 Less: Manufacturing costs(variable) = $575,000 Less: Selling and administrative expenses (variable) = $ 35,000 Income = $146,000

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