Question
Absorption Statement Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold. Saxon, Inc.
Absorption Statement
Absorption costing does not distinguish between variable and fixed costs. All manufacturing costs are included in the cost of goods sold.
Saxon, Inc. Absorption Costing Income Statement For the Year Ended December 31 | ||
Sales | $1,125,000 | |
Cost of goods sold: | ||
Cost of goods manufactured | $840,000 | |
Ending inventory | (210,000) | |
Total cost of goods sold | (630,000) | |
Gross profit | $495,000 | |
Selling and administrative expenses | (275,000) | |
Operating income | $220,000 |
Variable Statement
Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. This type of income statement includes a computation of manufacturing margin.
Saxon, Inc. Variable Costing Income Statement For the Year Ended December 31 | |||
Sales | $1,125,000 | ||
Variable cost of goods sold: | |||
Variable cost of goods manufactured | $600,000 | ||
Ending inventory | (150,000) | ||
Total variable cost of goods sold | (450,000) | ||
Manufacturing margin | $675,000 | ||
Variable selling and administrative expenses | (210,000) | ||
Contribution margin | $465,000 | ||
Fixed costs: | |||
Fixed manufacturing costs | $240,000 | ||
Fixed selling and administrative expenses | 65,000 | ||
Total fixed costs | (305,000) | ||
Operating income | $160,000 |
1. Use the income statements on the Absorption Statement and Variable Statement to complete the following table for the original production level. Then prepare similar income statements at a production level 10,000 units higher and add that information to the table. Assume that total fixed costs, unit variable costs, unit sales price, and the sales levels are the same at both production levels.
Operating Income | |||
Original Production Level-Absorption | Original Production Level-Variable | Additional 10,000 Units-Absorption | Additional 10,000 Units-Variable |
$ | $ | $ | $ |
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