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:

a. Prepare an income statement using absorption costing.

b. Prepare an income statement using variable costing.

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

Explanation / Answer

product cost = 655000/50000= 13.1 Absorption costing income statement Sales (42,000*18) 756000 cost of goods sold: Cost of goods manufactured 655000 less, inventory jan 31 (8000*13.10) 104800 cost of goods sold: 550200 gross profit 205800 less:Selling and administrative expense 45,500 net income 160,300 Variable costing income statement sales 756,000 variable cost of goods sold cost of goods manufactued 575,000 less inventory , jan 31 (575000/50000)*8000 92000 variable cost of goods sold 483,000 manufacturing margin 273,000 less variable selling expense 35,000 contribution margin 238,000 fixed costs fixed manufacturing costs 80,000 fixed selling and administrative costs 10,500 90,500 net income 147,500

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