Question

Absorption Costing Income Statement

On October 31, the end of the first month of operations, Maryville Equipment Company prepared the following income statement, based on the variable costing concept:
Maryville Equipment Company
Variable Costing Income Statement
For the Month Ended October 31
Sales (220,000 units) $7,920,000
Variable cost of goods sold:
Variable cost of goods manufactured$6,360,000
Inventory, October 31 (45,000 units)(1,080,000)
Total variable cost of goods sold (5,280,000)
Manufacturing margin $2,640,000
Variable selling and administrative expenses (330,000)
Contribution margin $2,310,000
Fixed costs:
Fixed manufacturing costs$530,000
Fixed selling and administrative expenses100,000
Total fixed costs (630,000)
Operating income $1,680,000
Prepare an income statement under absorption costing.
Maryville Equipment Company
Absorption Costing Income Statement
For the Month Ended October 31
Cost of goods sold:

Answer 1

See below

Step-by-step explanation:

Income statement under absorption costing:

Sales revenue

$7,920,000

Less:

COGS (220,000 × 26)

($5,720,000)

Gross profit:

$2,200,000

Selling and administration expense

($990,000)

*Variable

$330,000

*Fixed

$630,000

Operating income

$1,210,000

Workings:

Variable cost of goods manufactured $6,630,000

Fixed costs: Fixed manufacturing costs $530,000

Under absorption cost, the company will share the manufacturing cost over the units produced:

Variable manufacturing cost : $6,360,000

Fixed manufacturing cost : $530,000

Total cost : $6,890,000

Units produced

265,000

Units sold

220,000

+ ending inventory 45,000

Cost per units 26