During the first month of operations ended August 31, Kodiak Fridgeration Compan
ID: 2545996 • Letter: D
Question
During the first month of operations ended August 31, Kodiak Fridgeration Company manufactured 80,000 mini refrigerators, of which 72,000 were sold. Operating data for the month are summarized as follows:
1
Sales
$10,800,000.00
2
Manufacturing costs:
3
Direct materials
$6,400,000.00
4
Direct labor
1,600,000.00
5
Variable manufacturing cost
1,280,000.00
6
Fixed manufacturing cost
320,000.00
9,600,000.00
7
Selling and administrative expenses:
8
Variable
$1,080,000.00
9
Fixed
180,000.00
1,260,000.00
Required:
1.
Prepare an income statement based on the absorption costing concept.*
2.
Prepare an income statement based on the variable costing concept.*
3.
Explain the reason for the difference in the amount of income from operations reported in (1) and (2).
* Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Enter Inventory, August 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Labels and Amount Descriptions
Labels
August 31
Cost of goods sold
Fixed costs
For the Month Ended August 31
Variable cost of goods sold
Amount Descriptions
Contribution margin
Contribution margin ratio
Cost of goods manufactured
Fixed manufacturing costs
Fixed selling and administrative expenses
Gross profit
Income from operations
Inventory, August 31
Loss from operations
Manufacturing margin
Planned contribution margin
Sales
Sales mix
Selling and administrative expenses
Total cost of goods sold
Total fixed costs
Total variable cost of goods sold
Variable cost of goods manufactured
Variable selling and administrative expenses
Absorption Costing Income Statement
1. Prepare an income statement based on the absorption costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Enter Inventory, August 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Kodiak Fridgeration Company
Absorption Costing Income Statement
1
2
3
4
5
6
7
8
Variable Costing Income Statement
2. Prepare an income statement based on the variable costing concept. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Enter Inventory, August 31 as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Kodiak Fridgeration Company
Variable Costing Income Statement
1
2
3
4
5
6
7
8
9
10
11
12
13
1
Sales
$10,800,000.00
2
Manufacturing costs:
3
Direct materials
$6,400,000.00
4
Direct labor
1,600,000.00
5
Variable manufacturing cost
1,280,000.00
6
Fixed manufacturing cost
320,000.00
9,600,000.00
7
Selling and administrative expenses:
8
Variable
$1,080,000.00
9
Fixed
180,000.00
1,260,000.00
Explanation / Answer
Answer
Manufacturing cost per unit
Under Variable Costing
Under Absorption Costing
Direct materials [total / 80000 units produced]
80
80
Direct labor [total / 80000 units produced]
20
20
Variable manufacturing overhead [total / 80000 units produced]
16
16
Fixed Manufacturing Overhead per unit [total / 80000 units produced]
4
Total manufacturing cost per unit
$116
$120
Amount ($)
Working
Sales
10800000
given
Direct materials
5760000
72000x80
Direct labor
1440000
72000x20
Variable manufacturing cost
1152000
72000x16
Variable selling & administrative expense
1080000
9432000
[given & total]
Contribution margin
$1368000
10800000-9432000
Fixed manufacturing Overhead
320000
[given]
Fixed selling & administrative expenses
180000
500000
[given]
Net Income (Loss)
$868000
1368000-500000
Amount ($)
Working
Sales
10800000
given
Cost of Goods Sold
8640000
72000x120
Gross Margin
$2160000
10800000-864000
variable selling & administrative expenses
1080000
given
Fixed selling & administrative expenses
180000
given
1260000
Net Income
$900000
2160000-1260000
Net Income under (2) Absorption costing is MORE than income under (1) variable costing because under Absorption costing, Fixed manufacturing overheads are deferred to future periods in the form of closing stock value.
Ending Inventory = 8000 units
manufacturing cost difference = $4 per unit [120-116]
Total = 8000 units x $4 = $32000
Income under Absorption costing = $900,000
Income under variable costing = $868,000
Difference in incomes = $32,000
Manufacturing cost per unit
Under Variable Costing
Under Absorption Costing
Direct materials [total / 80000 units produced]
80
80
Direct labor [total / 80000 units produced]
20
20
Variable manufacturing overhead [total / 80000 units produced]
16
16
Fixed Manufacturing Overhead per unit [total / 80000 units produced]
4
Total manufacturing cost per unit
$116
$120
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