Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During thi

Question

Kenzi Kayaking, a manufacturer of kayaks, began operations this year. During this first year, the company produced 1,025 kayaks and sold 775 at a price of $1.025 each. At this first year-end, the company reported the following income statement information using absorption costing Sales (775x $1,025) Cost of goods sold (775 $450) $794,375 348,750 445,625 Gross margin Selling and administrative expenses250,000 Net income $195,625 Additional Information a. Production cost per kayak totals $450, which consists of $350 in variable production cost and $100 in fixed production cost-the latter amount is based on $102,500 of fixed production costs allocated to the 1,025 kayaks produced b. The $250,000 in selling and administrative expense consists of $95,000 that is variable and $155,000 that is fixed. Required 1. Prepare an income statement for the current year under variable costing

Explanation / Answer

Production 1025 Sold 775 Closing Stock 250 KENZI KAYAKING Variable Costing Income Statement Particulars Sales (775*1025) 794375 Less: Variable Costs Variable Production Costs (775*350) 271250 Variable S&A Costs 95000 Total Variable Costs 366250 Contribution Margin 428125 Less: Fixed Costs Fixed Overhead Costs 102500 Fixed S&A Exp 155000 Total Fixed Costs 257500 Net Income(Loss) 170625 Net Income under absorption costing is higher than net income under VC by 25000 (195625-170625) Fixed Cost added to Inventory 250*100 25000

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