During the first month of operations ended May 31, 2016, Frost Point Fridge Comp
ID: 2567726 • Letter: D
Question
During the first month of operations ended May 31, 2016, Frost Point Fridge Company manufactured 46,000 mini refrigerators, of which 42,000 were sold. Operating data for the month are summarized as follows:
1
Sales
$9,660,000.00
2
Manufacturing costs:
3
Direct materials
$3,220,000.00
4
Direct labor
1,380,000.00
5
Variable manufacturing cost
828,000.00
6
Fixed manufacturing cost
506,000.00
5,934,000.00
7
Selling and administrative expenses:
8
Variable
$756,000.00
9
Fixed
294,000.00
1,050,000.00
Labels and Amount Descriptions
Absorption Costing Income Statement
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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. “Less”, “Plus” or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Score: 6/66
Frost Point Fridge Company
Absorption Costing Income Statement
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2
Cost of goods sold:
3
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Points:
1.36 / 15
Feedback
Check My Work
Sales - (cost of goods manufactured - ending inventory*) = Gross profit; gross profit - selling and administrative expenses = income from operations.
* (Manufactured Units - Sold units) x (total manufacturing costs/manufactured units)
Variable Costing Income Statement
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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. “Less”, “Plus” or colons (:) will automatically appear if required. If a net loss is incurred, enter that amount as a negative number using a minus sign.
Question not attempted.
Score: 0/102
Frost Point Fridge Company
Variable Costing Income Statement
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2
Variable cost of goods sold:
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12
Points:
0 / 23
Feedback
Check My Work
Sales - variable cost of goods sold* = Manufacturing margin; Manufacturing margin - variable selling and administrative expenses = Contribution margin; Contribution margin - (fixed manufacturing costs + fixed selling and administrative expenses) = income from operations.
*Variable cost of goods sold = Variable cost of goods manufactured - [(Manufactured Units - Sold units) x (variable manufacturing costs/manufactured units)]
Final Question
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3. Explain the reason for the difference in the amount of income from operations reported in (1) and (2).
The income from operations reported under absorption costing exceeds the income from operations reported under variable costing by the difference between the two, due to fixed manufacturing costs that are deferred to a future month under absorption costing.
1
Sales
$9,660,000.00
2
Manufacturing costs:
3
Direct materials
$3,220,000.00
4
Direct labor
1,380,000.00
5
Variable manufacturing cost
828,000.00
6
Fixed manufacturing cost
506,000.00
5,934,000.00
7
Selling and administrative expenses:
8
Variable
$756,000.00
9
Fixed
294,000.00
1,050,000.00
Explanation / Answer
1. Income statement based on the absorption costing concept
2. Income statement based on the variable costing concept is:
3. Reason for difference is fixed manufacturing overhead as inm absorption costing manufacturing overhead is allocated on the basis of units sold.
Working of per unit cost:
Frost Point Fridge Company Absorption Costing Income Statement For the Month Ended May 31, 2016 Units Rate Amount ($) Sales 42,000 230.00 9,660,000 Less: Cost of goods sold: Direct Material 42,000 70.00 2,940,000 Direct Labour 42,000 30.00 1,260,000 Variable manufacturing overhead 42,000 18.00 756,000 Annual fixed manufacturing overhead 42,000 11.00 462,000 Gross Profit 4,242,000 Less: Selling and administrative expenses Variable selling and administrative expenses 42,000 18.00 756,000 Fixed selling and administrative expense 294,000 Net operating Profit/loss 3,192,000Related Questions
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