Bionic Cotton Inc. manufactures and sells high-quality sporting goods equipment

Question

Bionic Cotton Inc. manufactures and sells high-quality sporting goods equipment under its highly recognizable Cool Cat logo. The company began operations on January 1, 2016, and operated at 100% of capacity (88,000 units) during the first month, creating an ending inventory of 6,000 units. During February, the company produced 80,200 garments during the month but sold 86,200 units at $92 per unit. The February manufacturing costs and selling and administrative expenses were as follows Number of Units Unit Cost Total Cost Manufacturing costs in February beginning inventory Variable Fixed Total February manufacturing costs Variable Fixed Total Selling and administrative expenses Variable Fixed Total 6,000 $52$ 312,000 6,000 8 48,000 $60$360,000 $52 $ 4,170,400 10 $62$4,972,400 80,200 80,200 802,000 $ 1,310,000 338,000 $1,648,000

Explanation / Answer

A) Bionic Cotton Inc.

Absorption Costing Income Statement (Amount in $)

B)   Bionic Cotton Inc.

Variable Costing Income Statement (Amount in $)

Reason for difference in the amount of income from operations reported in A and B is:-

Under variable costing, all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change.

Sales (86,200*$92) 7,930,400 Cost of goods sold: Cost of goods manufactured 4,972,400 Add: Beginning Inventory (cost) 360,000 Less: Ending Inventory - (5,332,400) Gross Profit 2,598,000 Less: Fixed Selling and Administrative expenses (338,000) Less: Variable Selling and Administrative expenses (1,310,000) Income from Operations 950,000

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