On July 31, 2016, the end of the first month of operations, Rhys Company prepared the following income statement, based on the absorption costing concept: Rhys Company Income Statement – Absorption Costing For the Month Ended July 31, 2016 1 Sales (96,000 units) $4,440,000.00 2 Cost of goods sold: 3 Cost of goods manufactured $3,120,000.00 4 Less ending inventory (24,000 units) 624,000.00 5 Cost of goods sold 2,496,000.00 6 Gross profit $1,944,000.00 7 Selling and administrative expenses 288,000.00 8 Income from operations $1,656,000.00 Required: A. Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $132,000 and the variable selling and administrative expenses were $115,200. Refer to the Labels and Amount Descriptions list provided for the exact wording of the answer choices for text entries. “Less” or “Plus” and colons will automatically appear if it is required. In your computations, round unit costs to two decimal places and round final answers to the nearest dollar. B. Reconcile the absorption costing income from operations of $1,656,000 with the variable costing income from operations determined in (A).
(Solved Homework): On July 31, 2016, the end of the first month of operations, Rhys Company prepared the following income statement, based…
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Solution
Units manufactured=units sold +units in ending inventory
=96000+24000
=120,000 units
Variable cost of good manufactured:
=Cost of good manufactured-fixed manufacturing cost
=3120,000-132,000
=$2,988,000
Unit cost of ending inventory=2988000/120,000
=$24.90
Variable costing income statement:
| Sales | $4,440,000 | |
| Variable cost of good sold: | ||
| Variable cost of good manufactured | $2,988,000 | |
| Less ending inventory (24000×24.90) | $97,600 | |
| Variable cost of good sold | $2,390,400 | |
| Manufacturing margin | $2,049,600 | |
| Less variable selling and administrative expense | $115,200 | |
| Contribution margin | $1,934,400 | |
| Fixed cost: | ||
| Fixed manufacturing expense | $132,000 | |
| Fixed selling and administrative expense | $172,800 | $304,800 |
| Income from operation | $1,629,600 | |
2.
Absorption costing income from operation=$1,656,000
Variable costing income from operation=$1,629,600
Difference=$26,400
Reconciliation:
Unit change in inventory=24000 units
Fixed manufacturing cost per unit=×$1.10. (132,000/120,000)
Income from operation difference=$26,400
