On October 31, the end of the first month of operations, Morristown & Co. prepar

Question

On October 31, the end of the first month of operations, Morristown & Co. prepared the following income statement based on absorption costing: Morristown & Co. Income Statement For Month Ended October 31, 20- Sales (2,600 units) $117,000 Cost of goods sold: Cost of goods manufactured $85,500 Less ending inventory (400 units) 11,400 Cost of goods sold 74,100 Gross profit 42,900 Selling and administrative expenses 21,500 Income from operations $21,400 If the fixed manufacturing costs were $42,900 and the variable selling and administrative expenses were $14,600, prepare an income statement using variable costing.

Explanation / Answer

Morristown & Co. All Amounts in $ Income Statement using Variable Costing Sales 117000 Cost of Goods Sold 74100 Less : Fixed Manufacturing Overheads 42900 31200 Add : Variable Selling Expenses 14600 45800 Contribution Margin 71200 Less : Fixed Manufacturing Overheads 42900 Less : Fixed Selling Expenses 6900 49800 Net Income 21400

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