Question

Aces Inc., a manufacturer of tennis rackets, began operations this year. The company produced 6,200 rackets and sold 5,100. Each racket was sold at a price of $92. Fixed overhead costs are $81,840 and fixed selling and administrative costs are $65,400. The company also reports the following per unit costs for the year:



Variable production costs $ 25.20
Variable selling and administrative expenses $ 2.20


Required:
Prepare an income statement under variable costing.

Answer 1

Answer:

income statement under variable costing.

Sales (5,100 × $92)                                                                             $469,200

Less Cost of Sales :

Opening Inventory                                                                 $0

Add Cost of Goods Manufactured (6,200 × $ 25.20)    $156,240

Less Closing Inventory (1,100 × $ 25.20)                         ($27,720) ($128,520)

Contribution                                                                                         $340,680

Less Expenses:

Fixed overhead costs are                                                                    ($81,840)

fixed selling and administrative costs                                                ($65,400)

Variable selling and administrative expenses ($ 2.20×5,100)           ($11,220)

Net Income / (loss)                                                                                $182,220

Explanation:

Only the Variable production costs are included as cost of goods sold expense.

Both the Non - Manufacturing expenses (Selling and Administrative) and Fixed Manufacturing Overhead are treated as period cost under variable costing.